Dan Niles: Meta's next AI payday could be a public cloud

Dan Niles, founder and portfolio manager of Niles Investment Management, laid out his thinking on a recent CNBC program. His firm wrote about Meta on September 7, when the shares were down about 7% for the year. Since then, Meta has launched Muse, an AI agent that sits at number one on the App Store ahead of ChatGPT — a result Niles cites as evidence the stock still has momentum, even as he concedes he does not like it as much as he did at that September 7 entry point.

The cloud idea fits a bigger theme in the article: Meta already has an enormous audience — about 3.6 billion people use at least one Meta app every day — and it pays for AI spending out of an advertising business that throws off a lot of cash. Advertising still makes up almost 98% of revenue, so a public cloud would be a genuinely new source of income if Meta chose to pursue it.

What the outcome hinges on is cost. Meta's spending plan for 2026 is so large that free cash flow is expected to fall sharply and not recover until at least fiscal 2028, and it has signed long-term contracts and data center leases that run for years. If demand or Muse sales fall short, some of that capacity could sit idle while the costs continue — making the case for a second revenue stream like cloud more pressing, but also harder to prove while the bill is still growing.