Meta Should Get Out of Metaverse, Says Laffer Tengler CEO

Data Center Buildouts, Meta’s Shift, and AI Adoption: A Discussion on Market Trends

Key Concepts:

• Data Center Buildouts: The rapid expansion of infrastructure to support increasing data storage and processing needs, particularly driven by AI.
• Sovereign Compute: The need for nations to control their own computing infrastructure for security and strategic reasons.
• Metaverse: A virtual reality world envisioned by Meta (formerly Facebook), now being de-emphasized in favor of other technologies.
• Ray-Ban Meta Smart Glasses: Smart glasses developed by Meta in partnership with EssilorLuxottica, utilizing voice-based AI.
• Productivity Growth: The rate at which the economy produces goods and services per unit of input (e.g., labor).
• AI Tailwinds: The positive impact of artificial intelligence on the growth of specific companies or industries.

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Microsoft’s Proactive Approach to Data Center Expansion

The discussion begins with Microsoft’s strategy regarding the construction of new data centers. It’s noted that Microsoft is proactively addressing potential community resistance, a pattern observed with other large-scale projects like Tesla’s move to Texas and the implementation of renewable energy infrastructure (windmills, solar panels). This proactive approach involves community engagement, cost-sharing, and demonstrating goodwill. The speaker highlights that anticipating and mitigating public concerns is crucial in a “transformative economy” where large-scale infrastructure projects are increasingly common. The announcement was strategically timed with President Biden’s involvement, showcasing Microsoft’s commitment to being a “good citizen.”

Market Sentiment and Investment in Buildout Stocks

The conversation shifts to assessing whether the current investment in data center infrastructure represents a bubble. The analysis focuses on technology stock valuations, comparing the current situation (62% of stocks above their 200-day moving average) to the dot-com bubble of 1999-2000 (70-90% above the 200-day moving average). The conclusion is that skepticism remains, indicating the market is not currently in bubble territory. The speaker’s firm holds significant positions in “nuclear names” and “buildout names,” citing “incredible backlogs” as justification for their investment.

Meta’s Strategic Pivot Away from the Metaverse

A significant portion of the discussion centers on Meta (formerly Facebook) and its shift away from the Metaverse. The speaker expresses a strong negative view of the Metaverse, stating that Zuckerberg should “pull the Band-Aid off and be done with it” as it doesn’t represent the company’s future. This perspective was a key factor in the firm’s decision to exit Meta’s stock due to concerns about distraction and unclear commercial value.

The focus is now on two key areas: data centers and the Ray-Ban Meta smart glasses. Bloomberg reports that EssilorLuxottica, the manufacturer of the Ray-Ban glasses, has a current capacity of 10 million units and is in discussions to double that to 20 million, potentially reaching 30 million units if demand warrants. The speaker acknowledges a past skepticism towards cameras in phones, admitting the possibility of being wrong about the glasses’ potential.

AI Adoption and Productivity Growth

The discussion then turns to the adoption of Artificial Intelligence (AI). A key point is that much of AI usage is “free” to consumers (e.g., through Google services), making it difficult to capture in traditional GDP measurements. The focus, therefore, is on commercial applications. The speaker believes AI adoption is happening “much quicker than most people understand” and will become evident in corporate earnings reports.

Crucially, the speaker highlights a 4.9% productivity growth rate last quarter, exceeding GDP growth at 4.3%, indicating a positive impact from AI and other technologies. This productivity growth is seen as a disinflationary force and a buffer against consumer stress. The speaker also notes a significant increase in new business applications, suggesting a wave of entrepreneurial activity fueled by these technologies.

Key Investment Bets for 2026 and Beyond

The conversation concludes with a review of the speaker’s firm’s key investment bets for 2026. These include:

• Alphabet (Google): Highlighted as a leader in AI and a value stock initially acquired in 2020. The addition of a $4 trillion player like Alphabet is seen as significant.
• Walmart: Entering the Nasdaq and heavily investing in AI.
• AMD: Benefiting from AI tailwinds.
• CrowdStrike: Also benefiting from AI tailwinds, with the Signal acquisition being a key factor.
• Tesla: A continued holding.
• D.R. Horton: A bet on the housing market, which has performed well due to anticipated government intervention.
• Quantum: Involved in grid infrastructure and data center buildout.

The firm’s portfolio achieved a 23% return last year, despite a 27% decline in ServiceNow’s performance.

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Notable Quotes:

• “The sooner Zuckerberg gets metaverse out of the vocabulary in the headlines, the better off it is for the company.” – Speaker on Meta’s Metaverse strategy.
• “I think the adoption [of AI] is much quicker than most people understand.” – Speaker on the pace of AI implementation.
• “We’ve got a new $4 trillion player to add to the pack that is alphabet Nancy.” – Speaker highlighting the significance of Alphabet’s growth.

Synthesis/Conclusion:

The discussion paints a picture of a rapidly evolving technological landscape. While acknowledging potential risks, the overall tone is optimistic, particularly regarding AI-driven productivity growth and the strategic shifts of major tech companies like Microsoft and Meta. The emphasis on proactive community engagement for data center buildouts and a pragmatic assessment of the Metaverse’s limitations underscore the importance of adaptability and a focus on tangible commercial applications in this transformative economic period. The firm’s investment strategy reflects a belief in companies positioned to benefit from these trends, with a particular emphasis on AI and infrastructure development.