Meta Platforms (META -3.46%) stock gained 4.5% yesterday as several Wall Street analysts expressed optimism that its new "Muse" AI agent could drive revenue growth and strong profits.
Meta stock is giving back much of yesterday's gains today, however, falling 3.4% through 10:25 a.m. on somewhat less optimistic thoughts from Goldman Sachs.
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What Goldman Sachs worries about with AI
AI hyperscalers, including Meta, are likely to spend $800 billion on capital investment this year, buying chips and building data centers. Spending will accelerate to $1.1 trillion next year.
To offset all this spending, Goldman says hyperscalers have announced "revenue backlogs" north of $1.5 trillion, reports StreetInsider.com. But unlike the costs, this revenue won't come all in one year. Going forward, the analyst estimates that hyperscalers, as a group, need to generate consistent revenue from AI services of around $300 billion annually just to break even on the investments they've already made (or will make).
And to earn a decent profit, AI services revenue needs to be more like $1 trillion a year.
NASDAQ: META
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What this means for Meta stock
Is that number achievable? Global software spending of all forms will be $1.5 trillion this year, says Goldman. If much of that is converted into AI spending, $1 trillion in annual AI revenue seems possible. If we are talking about $1 trillion in annual AI spending on top of existing software spending, though, then reaching $1 trillion will be trickier.
Not impossible -- just trickier.
To gauge how likely this is, Goldman suggests investors watch earnings at companies that buy these services. "The impact of AI on corporate earnings should become increasingly visible in coming quarters." And the more profitable the AI customers... the more likely that hyperscaler providers like Meta profit from AI as well.
