Meta Platforms – Sunshine Pt. II.

This is not a long-term opportunity

• Meta appears to be in talks with Anthropic to rent some of its compute capacity, confirming that there is a short-term opportunity to make a great return, which is not going to be around for very long.
• Meta Platforms appears to be negotiating a $10bn two-year deal with Anthropic to lease what I would estimate is about 150MW of compute capcity.
• By my estimate, the going rate for Blackwell capacity is around $37bn per GW, while Vera Rubin can command a price of $55bn per GW based on the deals that lessees have struck with xAI.
• Based on the compute that these two systems can produce, this offers the owner of the capacity around a 60% return on investment, assuming that it is able to command that price for a 5-year period.
• This is a major assumption as xAi’s deals have a 90-day cancellation option and I do not think that the crazy prices currently being commanded by the owners of capacity will hold for very long.
• This is because many who built capacity for their own purposes can see that the return they can earn by leasing out the capacity is far greater than they can earn from their own products.
• While this extraordinary state of affairs persists, we are going to see more of these sorts of deals as those with average AI park their in-house offerings and lease out their capacity to anyone who wants it.
• The cure for high prices is always high prices, and the slew of capacity coming into the market is going to compress pricing and begin the inevitable normalisation process.
• However, while the extreme shortage persists, there are excellent returns to be made, and I see Meta moving to make the most of these while the opportunity lasts.
• The big question is when the shortage will be over, which Micron has hinted will be 2028, but I suspect for compute that it might be sooner.
• This is because by spending $750bn in 2026, one would expect around 15GW of capacity to come online in 2026, which combined with previous buyers of capacity becoming sellers, could materially move the supply-demand balance.
• This is especially the case when pricing is so far out of balance, offering 60% returns when something closer to 15% to 20% would be a normal state of affairs.
• Hence, I suspect that both Meta and xAI will withdraw their capacity from the market once prices normalise, as they will be able to make a higher return on the products their AI enables as opposed to renting out capacity.
• When I look at Meta, the incremental value created by renting out up to 5GW of capacity for 5 years is worth around $70 per share on a DCF basis with a 9% discount rate.
• If this business were to become permanent, it would be worth around $300 per share, but this assumes no fall in pricing, which in my opinion is a virtual certainty.  
• Without this business, I can value Meta at $700 per share, and I think that the market could easily price in my 5-year compute scenario.
• Hence, I am looking for around $760 per share at which point I will be looking to sell and move on to something more long-term in nature.
• I have a position in Meta Platforms where I am looking for announcements like this and a good set of Q2 26 results (29^th July) to drive a recovery in the share price to the levels I am looking for.