Key Points

A cloud computing business unit could generate big profits for Meta.
Even after a rally triggered by the cloud computing news, the stock is still cheap.
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When analysts and investors discuss artificial intelligence hyperscalers, Meta Platforms (NASDAQ: META) is frequently part of the conversation. Yet the other three major players - Alphabet, Amazon, and Microsoft - share a key feature that Meta lacks: dedicated cloud computing operations.

Those companies have turned their data centers into revenue generators by offering capacity to external clients, whereas Meta has funded its infrastructure internally with plans to consume all available resources for its own needs. No external revenue stream appeared on the horizon until now.

Reports indicate Meta intends to launch a cloud service and rent out surplus AI computing power. This marks a notable policy change, since CEO Mark Zuckerberg had stated the company was fully utilizing capacity for internal tasks.

Should Meta proceed with a cloud unit, the move could spark a substantial recovery in the stock price.

Image source: Getty Images.

Cloud computing has transformed these other three companies

Cloud services form a core profit driver for the other hyperscalers. Amazon, often viewed mainly as an online retailer, derives nearly 60 percent of operating profits from Amazon Web Services. A Meta cloud effort would likely not match that scale immediately but would introduce fresh income to support ongoing data center expansion.

Investors should temper expectations, however. Zuckerberg emphasized that only excess capacity would be offered externally. This means the cloud initiative will not divert large portions of existing infrastructure or trigger new builds aimed solely at outside clients. As a result, Meta's cloud operations are unlikely to become the dominant profit center seen at peer companies.

What excites investors most is Meta's apparent openness to adjusting its AI approach. The firm has sometimes persisted with underperforming strategies. This flexibility signals the adaptability markets seek, and confirmation during the July 29 second-quarter earnings call could lift the shares sharply.

Meta currently trades at roughly 18.7 times forward earnings, below the S&P 500 multiple of 21.7 times. The cloud plan might help narrow that discount or even support a premium valuation given the company's growth trajectory.

Meta appears an attractive purchase ahead of the earnings release, as the valuation remains reasonable and the strategy shift could serve as a positive catalyst.

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Keithen Drury holds positions in Alphabet, Amazon, Meta Platforms, and Microsoft. The Motley Fool maintains positions in and recommends Alphabet, Amazon, Meta Platforms, and Microsoft. The Motley Fool follows a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.