From "burning money black hole" to "monetization engine": Meta's computing power monetization opens up the valuation ceiling, with Deutsche Bank and Morgan Stanley singing praises.

Notice that Meta (META.US) is planning to enter the cloud infrastructure market and intends to open up AI computing power and model access services to external developers. After the news came out, both Deutsche Bank and Morgan Stanley raised their evaluations of Meta's cloud business prospects, believing that monetizing excess computing power is an attractive short-term EPS gold mine, which not only effectively reduces the risk exposure of high capital expenditures, but also opens up a whole new space for market imagination. Both investment banks maintained a "buy" rating on Meta, but there are significant differences in their strategic positioning and performance expectations for this potential new business, reflected in their target prices. Morgan Stanley and Deutsche Bank gave target prices of $775 and $810 respectively, representing an upside potential of 38% to 44% from the current stock price. Morgan Stanley: New cloud is "icing on the cake," full-stack cloud faces challenges Analyst Brian Nowak's team pointed out that Meta faces high technological and execution barriers if it wants to build a complete ecosystem of large-scale cloud services. Morgan Stanley noted that Meta's Muse series models scored poorly in code capabilities and third-party applicability in TerminalBench and SWE-bench Verified benchmark tests, indicating the need for product iteration to compete with cutting-edge models like Gemini. In addition, Meta lacks an enterprise sales team and a mature software services system, making it difficult to compete head-on with giants like AWS, Azure, and Google Cloud in the short term. Therefore, Morgan Stanley defines Meta's potential cloud services as a "neo-cloud" model, mainly renting out idle raw computing power, rather than providing a full suite of API services. This model does not require large-scale hiring of new employees or building complex software stacks, reducing execution risks. In terms of capacity estimation, Morgan Stanley expects Meta to add approximately 2GW and 3.5GW of self-owned IT capacity in 2026 and 2027, respectively. Based on the assumption of renting out 250MW of computing power at $40/Watt per year, this business is expected to increase Meta's earnings per share by approximately $3 in 2028, equivalent to an 8% increase. However, Morgan Stanley emphasized that its "buy" rating on Meta is not based on cloud services, but rather on the company's operational efficiency improvements, the monetization of Reels, and the empowerment of AI on its advertising business. The research report suggests that computing power leasing is more of a "temporary EPS bridge," and if Meta significantly increases capital expenditure for this, there is an upward risk to capital expenditure in 2027-2028. Deutsche Bank: Monetizing computing power improves capital expenditure narrative Compared to Morgan Stanley's caution, Benjamin Black's team at Deutsche Bank is more optimistic. Deutsche Bank believes that Meta's strategic layout in cloud infrastructure is not a departure from cutting-edge AI model research and development, but a "tactical" way to monetize production capacity. Deutsche Bank's analysis suggests that Meta is likely to retain its latest chip clusters for internal super-intelligent training, while putting older or non-core idle computing power on the market. This strategy can both preserve technological moats and improve market concerns about AI capital expenditures through direct revenue streams. In particular, the cash flow generated by renting out computing power in the joint venture data center project with Blue Owl helps optimize the balance sheet structure. In terms of financial calculations, Deutsche Bank has more aggressive expectations. Assuming Meta has 1.2GW to 2.65GW of saleable computing power in 2027, with a utilization rate of 75% and a price range of $1 billion to $1.5 billion per GW, this business is expected to bring in incremental revenue of $9 billion to $30 billion, accounting for approximately 3% to 10% of market expectations. This will drive Meta's 2027 GAAP earnings per share to increase by $1.40 to $7.50, surpassing market expectations by 4% to 21%. Deutsche Bank specifically points out that models like AWS Bedrock API services have higher strategic value compared to simply renting out bare GPUs. These services have recurring, usage-based billing characteristics and are closer to software attributes, which can help enhance Meta's overall valuation multiples. However, Deutsche Bank also acknowledges that Meta currently lacks enterprise distribution channels on the level of AWS, and scaling up will require filling in infrastructure such as service level agreements (SLAs), billing systems, and compliance support. From "burning money" to "monetizing" The consensus of the two investment banks is that Meta's AI investments are shifting from pure cost centers to monetizable assets. In the past two years, the core question in the market regarding Meta's AI capital expenditures has been "high investment, low visible return." The indirect benefits of advertising and recommendations are difficult to quantify, while the cloud plan provides a direct third-party revenue stream meaning that the market no longer needs to link all infrastructure investments solely to internal operations. The differences between Deutsche Bank and Morgan Stanley lie in the quality of revenue and valuation anchors. Deutsche Bank places more emphasis on the stability and high-quality revenue streams brought by the API model, with the target price implying a premium for cloud business; Morgan Stanley highlights the light asset attributes of the "new cloud," emphasizing the ability to monetize without significant investment. From a valuation framework perspective, cloud revenue typically enjoys a higher price-earnings ratio than advertising. Even if some revenue comes from bare computing power leasing essentially a "second-hand GPU business" it can still shift Meta's valuation anchor from a "social advertising company" to an "AI infrastructure platform."