Meta Platforms Inc. (NASDAQ:META) staged a midday recovery on Thursday, with shares climbing approximately 1.7% to $613.19 after opening lower. The stock had earlier touched a session low of $577.67, representing a decline of more than 4% from the prior close, before reversing course as investor concerns over the company's substantial AI-related spending appeared to ease.
The reversal comes amid heightened scrutiny of Meta's capital expenditure plans, particularly its investments in artificial intelligence infrastructure. According to a Reuters report citing internal communications, Meta is preparing to commence production of its proprietary Iris AI chip in September, following successful testing over the past six weeks. The company also reiterated its goal of doubling computing capacity from 7 gigawatts this year to 14 gigawatts by 2027, a key metric used to gauge the scale of its AI data center buildout.
Investors are increasingly evaluating Meta's AI investments through a lens of efficiency and self-sufficiency. The central question is whether each additional gigawatt of computing power will reduce the company's reliance on external chip suppliers, particularly Nvidia Corp. (NASDAQ:NVDA), and ultimately translate into lower costs and improved margins. The Iris chip is designed to supplement the graphics processing units (GPUs) Meta currently uses for AI workloads, with Broadcom Inc. (NASDAQ:AVGO) and Taiwan Semiconductor Manufacturing Co. (NYSE:TSM) reportedly involved in its development.
Meta's expansion plans extend beyond chips. The company recently announced its first Canadian data center in Alberta, which will initially offer 1 gigawatt of capacity, with plans to scale to 1.8 gigawatts. The project represents a commitment of over C$13 billion. The initial phase accounts for roughly 14% of Meta's planned 7-gigawatt capacity increase next year, while the full build-out would represent about 26% of that target. This provides investors with a tangible benchmark for assessing the capital intensity of Meta's infrastructure investments.
Market reaction was mixed across the technology sector. While Meta outperformed the Communication Services Select Sector SPDR Fund (NYSEARCA:XLC), which gained only 0.2%, Alphabet Inc. (NASDAQ:GOOGL) fell 1.9% amid ongoing competition in cloud and advertising. Nvidia dropped 1.2% as GPU demand concerns persisted, while Broadcom rose 3.7% on news of its collaboration with Meta on the Iris chip, highlighting the supplier dynamics at play.
Broader market indices showed resilience, with the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) up 0.7% and the Invesco QQQ Trust (NASDAQ:QQQ) gaining 1.5%. However, Michael Hewson, senior market analyst at iFOREX, cautioned that the strong first-half performance of the S&P 500 and Nasdaq, driven largely by memory-storage providers, faces headwinds from profit sustainability concerns and renewed tensions in the Middle East. Given that memory chips underpin AI data center operations, these factors have direct implications for Meta's cost structure.
Monetization remains a key focus for Meta beyond advertising. Reuters reported, citing Bloomberg News, that Meta plans to sell excess AI computing capacity through a new cloud business. Gil Luria, managing director at D.A. Davidson, noted that this move would primarily impact "neoclouds"—companies that rent out only AI compute power—rather than major hyperscale cloud providers. Meta's advertising business continues to generate the bulk of its revenue, with first-quarter ad revenue of $55.02 billion on total revenue of $56.31 billion, ad impressions up 19%, and average ad prices rising 12%. Capital spending reached $19.84 billion, while free cash flow stood at $12.39 billion, underscoring the tension between AI investment and cash generation.
Looking ahead, Meta has raised its 2026 capital expenditure guidance to $125 billion-$145 billion, citing higher component costs and additional data center spending. The company also flagged legal and regulatory risks, particularly related to youth safety, which could impact results. If the Iris chip fails to deliver on its promise of reducing GPU and memory costs, Thursday's bounce may prove to be a relief rally rather than a signal of sustainable growth. The next test for Meta will be its second-quarter revenue outlook of $58 billion to $61 billion, as investors assess whether each new gigawatt of computing power generates sufficient returns through ad efficiency, cloud revenue, or cost savings before depreciation begins to weigh on earnings.
