Farewell to the "blindly splurging money" in the metaverse! Rent out basic infrastructure, Meta (META.US) uses AI to monetize and rebuild Wall Street's trust.

Notice that, in just two weeks, Meta (META.US) has gone from being a forgotten side character in the market to becoming one of the hottest stocks. Investors are finally buying into the AI plans outlined by the company. The stock rose 17% in July, making it the third best-performing stock in the S&P 500 index, and is on track to achieve its best monthly performance since May 2025. This is a huge turnaround from June, when Meta dropped 11%, almost bottoming out in the S&P 500 index. Although the stock has only stayed flat so far this year, this is a significant improvement compared to the first half of the year when it dropped 15%, making it one of the weakest performers among large tech stocks. Meta stock soared, becoming the third best stock in the S&P 500 index in July This rebound began on July 1st when media reports suggested that Meta was developing a cloud computing business plan, which drove the stock up 8.8% that day. Last week, CEO Mark Zuckerberg announced that due to strong demand for computational power, Meta is considering renting out some of its AI infrastructure to external organizations. The social media giant also recently launched a new version of its AI model, Muse Spark 1.1, which includes a new paid tier for developers, marking the first time Meta is charging enterprises to access its models. John Belton, fund manager at Gabelli Funds, who holds Meta stock, said, "If catalysts start to take effect, stocks like Meta, which are indeed trading at very low valuations, will have more room to rise, or perform more like a compressed spring." As Belton mentioned, previous sell-offs had pushed Meta's stock to historic lows. The stock is currently priced at around 16 times expected earnings for the next 12 months, while its 10-year average is over 20 times. It is valued the lowest among the "Big Tech Seven," and is discounted compared to both the S&P 500 index and the Nasdaq 100 index. Meta's price-to-earnings ratio had dropped to around 13 times forward earnings in late June. This was its lowest level in history, second only to the inflation collapse periods in early 2022 and 2023, which coincided with the controversial and costly metaverse project launch. For Meta's stock, this has been a long downward journey. The stock reached a peak of $790 on August 12, 2025, but fell about 30% over the next 10 months, closing around $563 at the end of June. The drop was partly due to a broader market rotation - investors sold stocks of companies with high AI expenses like Meta and instead bought stocks of chip manufacturers, memory manufacturers, and other companies benefiting from billions in capital expenditure. Meta's valuation has been steadily declining over the past year But this trend is also related to Meta's own situation. While the company has seen early signs of AI boosting advertising revenue, it has had difficulty explaining how it will apply this technology to its various businesses. In addition, its large language models lag behind competitors like OpenAI's ChatGPT and Anthropic's Claude. The recent round of declines was triggered by the company's last earnings report released on April 29. At that time, the company raised its spending outlook for 2026 due to additional data center costs and "higher component pricing." This was followed a day later by Meta issuing $25 billion in bonds to fund some of its AI expenses. These announcements heightened investor concerns that Meta's huge AI spending may not yield returns. This also brought back memories of 2022 when Zuckerberg made a big bet on the metaverse but failed. Lack of trust Angelo Zino, head of the CFRA technology team, said, "The compression of valuation multiples is largely due to the lack of trust in Meta in the investment community." Clearly, Wall Street has been looking for signs to prove that the company's AI plans are more concrete than just throwing money around. Now, with results beginning to show promise, investors are finding reasons to buy the stock again. Wall Street is optimistic about the company, with 73 out of 79 analysts tracking the stock giving it a buy equivalent rating. The average target price of $816 implies a more than 23% increase in the stock over the next 12 months. Meanwhile, Meta has not slowed down its spending pace. This week, the company added another $4 billion for a data center campus in Louisiana, pushing the expected total investment for the site to over $25 billion. Dan O'Keefe, chief portfolio manager of the Artisan Partners Global Value team, who holds Meta stock, said, "With jurisdictional resistance to these developments, political pressure and societal pressures could slow down or even halt some investments," "Therefore, I do think it's the right decision to make these massive investments early, and I do see that they could pay off for the business." Investors will get more information when Meta releases its second-quarter results at the end of July. The company is expected to report a 27% revenue growth, while earnings per share are expected to be essentially flat compared to the same period last year. But as always, investors are most eager to learn about the latest developments in AI progress and the direction of Meta's various businesses. Zino of CFRA said, "If we look back at Meta's performance over the past two years, they may be monetizing AI in their core ecosystem better than anyone else," "And now, on top of that, they are demonstrating some diversification capabilities and new initiatives, coupled with their valuation, laying a very good foundation for a strong rebound in the coming quarters."