Meta's reported interest in monetizing its AI infrastructure is leading investors to question the sustainability of neocloud business models
Meta holds $35.2 billion in infrastructure contracts with CoreWeave.
Artificial-intelligence infrastructure providers like CoreWeave and Nebius Group may soon face stiff competition from a new kid on the block: Meta Platforms.
According to a Wednesday Bloomberg report, Meta (META) is developing an internal "Meta Compute" division to sell its excess cloud capacity. The company is reportedly considering charging developers to use models hosted directly on Meta's infrastructure, as well as renting its raw compute capacity out in direct competition with existing neoclouds.
The social-media giant is taking a page from SpaceX $(SPCX)$, which recently pivoted to selling its excess capacity to customers like Anthropic and Alphabet $(GOOGL)$ $(GOOG)$. Meta CEO Mark Zuckerberg previously hinted at the possibility of this business move as a way of monetizing "overbuilt" capacity.
Representatives from Meta declined to comment.
Bernstein analyst Madison Rezaei initially flagged the possibility of such a risk to neoclouds in a March note, likening CoreWeave's business model to a "situationship," or a noncommittal romantic entanglement.
Rezaei argued that neoclouds like CoreWeave face the risk of major hyperscaler customers eventually becoming competitors as they build out their own data-center capacity. That would suggest that hyperscalers are using neoclouds more as a stopgap measure than a long-term solution.
CoreWeave and Nebius offer GPUs-as-a-service, providing customers with the highly specialized infrastructure necessary to run AI workloads. Beyond hardware, they also provide end-to-end AI development solutions. Their businesses have flourished in a compute-constrained environment with a seemingly insatiable demand for capacity.
Should Meta develop a cloud platform rivaling Amazon's (AMZN) AWS, Microsoft's $(MSFT)$ Azure or Google Cloud Platform, "it's problematic for CoreWeave," Rezaei wrote in a Wednesday note.
Meta struck a $14.2 billion deal with CoreWeave last September, and the two parties expanded the agreement by an incremental $21 billion in April. In March, Meta also signed a contract with Nebius for AI infrastructure services of up to $27 billion.
But now, Meta's move to sell its extra capacity suggests that the tech giant may no longer need to purchase significantly more computing power.
The combined $35.2 billion of contracts represents over a third of CoreWeave's backlog, Rezaei pointed out.
With another $14 billion in contracts from Microsoft, "nearly half of [CoreWeave's] backlog comes from customers who will be full competitors at the time of renewal," Rezaei wrote.
CoreWeave and Nebius did not immediately respond to requests for comment.
Comments