The AI Trade Just Got A Warning From Meta

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**Ed Zitron** (1:03)
If money is evil, then that building is hell.

**Ed Elson** (1:12)
Welcome to Prof G Markets, I'm Ed Elson. It is July 2nd. Let's check in on yesterday's market vitals.
The Dow was roughly flat to start the third quarter. Meanwhile, chip stocks dragged the NASDAQ and the S&P 500 into the red. Brent crude dropped as the US signaled talks that the Iran were productive. And the yield on 10-year treasuries rose after Fed Chair Warsh said inflation was, quote, too high. Okay, what else is happening? The cloud computing industry has just gained an unexpected new arrival. Meta is reportedly planning a cloud business to sell its excess AI capacity. The company has poured billions into its AI infrastructure and until now, Meta has maintained that all of those investments and the resulting compute capacity would be used for internal purposes. But clearly now, something has changed. Meta stock closed up nearly 9% on the news, but other Neo-cloud compute providers such as Coreweave dropped on this news. So for more on why Meta is getting into the compute game and what it means for the rest of the AI industry, we are joined again by Ed Zitron, author of the Where's Your Ed At Newsletter and host of the Better Offline Podcast. Ed, good to see you. I'll just start with the good news on my end because for those of the listeners who follow me on social media, I actually bought Meta last week and it's up 10% since then. So technically, I'm happy because my view was that the price was pretty cheap relative to the rest of tech and relative to the S&P.
So that's the good news. Bad news potentially is we thought that Meta was going to build their own AI products. Now they're saying, no, we're going to sell the compute to someone else, for someone else to build their AI products. And that's why I wanted to talk to you because it doesn't seem like a great signal for the AI industry and you've been all over this. So your reactions to this Meta news.

**Ed Zitron** (3:22)
I think it's a sign that Meta is walking away from its AI play. It's Berenbojodovski over at The Wall Street Journal at this point earlier. Meta was meant to have an API for its Mu Spark AI model weeks ago, just hasn't happened and now we've got these rumors of Meta allegedly selling off its compute capacity. There's no other way to read this other than Meta has told them they built too much compute capacity and now they're selling it. I think what we're going to see now is the age-bomber guy think of sell the compute to who, Aquaman at some point because who are the people that are buying this compute? Meta is I think the second or third largest buyer of AI compute. They have a $17 billion contract with Nebius, a $22.4 billion contract with CoreWave.
I'm not sure how this works and the bulls are already trying to frame this as, oh, this is Meta intelligently. They're monetizing their AI stack when what it actually is, is Meta is flat out of reasons to have this capacity. They said on their annual shareholders meeting, they thought they had a reason. They used the word think. They thought they had a reason to have all this compute capacity, but they might sell it if they don't, and I guess they don't.
I'm not sure how else to read this. This is very bad for the AI bubble. This is exactly what I feared, which is that these companies put way more capacity than they could ever, ever need.