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It's not every day you see a Magnificent 7 stock up 4% and go to look for news and find crickets. Yet, that's the situation Meta ( Nasdaq: META ) investors find themselves in today. The stock is up 4.3% on a fairly sleepy market day as most of Wall Street is taking the day off between July 4th and the weekend.
Yet, at 24/7 Wall Street we're pretty confident we know why Meta shares are seeing such gains today relative to the rest of the Magnificent 7 and the broader market. It all comes down to recently published research about Meta's return on artificial intelligence spending .
Why Meta's Stock is Surging Today
Bernstein Research recently published a report on Meta's AI spending that is fairly eye-opening. We've embedded a tweet below that shows some of the figures from Bernstein.
$META ROIC on content algo capex from bernstein pic.twitter.com/2zssEsy2kn
— Portsea Capital (@portseacapital) July 3, 2024
As you can see, Bernstein estimates a few key factors:
- Meta AI Spend: Bernstein estimates that Meta is spending $14.1 billion in core AI spend in 2024. That roughly squares with public statements from Mark Zuckerberg, who has said that Meta would have 340,000 H100 GPUs from NVIDIA ( Nasdaq: NVDA ) by the end of the year. With H100s costing somewhere in the ballpark of $25,000 each, that implies about $8.5 billion in spend on that one product alone. However, further statements from Meta have implied the company would have the total compute equivalent of 600,000 H100s, thanks to other processors. Those other processors are likely custom processors built by Broadcom ( Nasdaq: AVGO ) . Keep in mind that Meta's investment to 600,000 H100 equivalents is a multi-year effort and GPUs aren't the only cost to building out their AI content rankings. Meta is also spending on server rack infrastructure, memory, and other areas like liquid cooling as well.
- Increase in Time Spent Tied to AI Content Ranking: Bernstein estimates that 50% of content on Instagram and 40% of content on Facebook now comes from AI algorithms. Those algorithms are producing a 10-11% lift in time spent in the apps.
- Revenue Impacts From AI: This additional time spent translated to an incremental $16.3 billion in revenue this year.
- ROIC on AI Investments: Adding all these figures up, Bernstein estimates a 22% ROIC on Meta's investment in artificial intelligence investments for content ranking.
Why Meta Getting Great ROIC On AI Matters
Meta spent years building a "narrative" around the Metaverse being the company's future (just look at the name!). Unfortunately, that pitch fell flat with investors and the stock face-planted at the end of 2022.
The company's recent rebound is built upon an inflection in profits and also the "narrative" Meta is a leader in artificial intelligence. While the company is clearly making great progress on its foundational models like Llama, those are less about producing revenue today and more about being competitive in a long-term market. The numbers from Bernstein illustrate that even with massive AI spend today, Meta is successfully turning it into a positive return on its products.
That goes a long way in showing that of all the companies actually generating profits from AI today, Meta is near the top.
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