Meta Platforms (META +6.02%) stock jumped 6.6% through 1:15 p.m. ET Monday after Morgan Stanley analysts reassured investors about the company's prospects amid record investment in AI infrastructure.
Image source: The Motley Fool.
Meta Q2 earnings
Meta disappointed investors last week, reporting only a $6.18 per share profit where analysts had expected $7.17 -- despite beating on revenue. Meta stock sold off after the report, so why is it bouncing back so quickly today?
Investors didn't like it when Meta confirmed plans to spend as much as $145 billion on capital investment this year, especially not after seeing Meta's investments take such a big bite out of profits in the quarter.
NASDAQ: META
Key Data Points
What Morgan Stanley said about Meta's spending
But Morgan Stanley says it's OK for Meta to keep spending -- because everyone else is... and it's paying off for them.
All four of the big AI hyperscalers are spending gobs of money on AI investment right now, with Alphabet (GOOG +4.44%) announcing plans to spend $195 billion to $205 billion, Amazon (AMZN +4.58%) a bit more at $220 billion from $200 billion, and Microsoft (MSFT +4.93%) a bit less at about $190 billion.
Total cloud capital expenditure could exceed $1.2 trillion in 2027, says MS. However, "strong operating cash flow, equity and debt financing, leasing strategies, custom chips, and infrastructure efficiencies are helping fund capex while easing free cash flow pressure." Indeed, despite all the spending, Meta has generated $41 billion in positive FCF over the past 12 months.
The bad news: By the end of this year, most analysts expect Meta's free cash flow will turn negative -- and remain negative through 2027, as cash burn accelerates. How long they can keep that up, and whether investors will forgive them for it, remains to be seen.
