Neuberger Senior Research Analyst Dan Flax joins Brooke DiPalma on Market Domination to discuss growing investor concerns over massive AI infrastructure spending by tech hyperscalers. Flax explains where he sees opportunity for companies like Meta (META).
Investors though just so fixated on this fear of how much these hyperscalers are spending. What’s your take?
I think we’re we’re at a critical point here given that the cloud <a re seeing accelerating growth helped by AI workloads, of course. But at the same time, the capital needs are growing. And so you're seeing uh the companies raise debt. We saw Google earlier this year raise some equity. You could see equity raises uh going forward from some of the players as well.
But I think what’s business, digital advertising business and and an early stage enterprise business, I think there is value to be created and these companies can absorb the costs given the growth opportunities and and they will emerge with more durable uh growth stories in my view as we look out over the next 12 to 18 months.
But Dan, let’s take Meta for example, because after we heard from that company that said that they’re raising the low end of their forecast for total spending to 135 to 145 billion dollars this year, as far as CAPEX go, and that they have about $825 billion dollars in commitments, in future spending commitments that is. Meta really took a downturn. We saw investors turn away from it, we saw this fear reignite. I mean, yet you think of it as an opportunities, but yet there’s this fear of when exactly we’ll see that return. So, why is it an opportunity?
So, when when I look at what they’re doing in the digital advertising business, they’re able to to harness the GPUs, harness the silicon to drive better returns in that business. That of course is tougher for the market to see, and even give even though they have early success with muse, that will take some time to monetize. If you look at the core business though and how much operating cash flow it generates, that remains incredibly robust and I expect that to be the case next year as well.
And so, in terms of the capital raises or potential raises uh to to build out more infrastructure, that the market’s going to be probably concerned about in the near term, but what we see is that a lot of customers would like to be able to use Meta’s infrastructure, the tools to help them create more value for their businesses, they would like to rent compute, they would like to use Meta’s models. And so when you look at some of the newer opportunities where Meta is is uh putting capital to work. I think we’ll see more signs of of growth and really visibility around this over the next several months and that will help the market get a little bit more comfortable. Of course, they need to continue executing on their core business while they do that.
