Mark Zuckerberg is turning Meta into a bigger chip maker. The latest in-house AI chip goes into production in September.
stock meta platform (meta +6.16%) It rose about 6% on Friday after Reuters reported on Thursday that the social media giant plans to start manufacturing its own data center artificial intelligence (AI) chips in September. The chip, codenamed Iris, was designed with the help of Broadcom (AVGO 0.31%) and will be built by Taiwan Semiconductor Manufacturing (TSM 0.55%)According to an internal memo reviewed by the news organization.
The market’s enthusiasm is easy to understand. Meta expects to spend up to $145 billion on AI infrastructure this year, and that spending has been my biggest concern about the stock. Custom silicon aims to get more computing power at every penny.
So what does Meta’s chip expansion mean for the stock?
Image source: Getty Images.
Chip program is moving quickly
Iris is reportedly part of a fourth-generation family of chips that Meta is designing in-house, and the program appears to be ahead of what many investors expected. Testing the chip took about six weeks, according to the memo, and found no major problems.
Moreover, Meta reportedly plans to release new chips approximately every six months until 2027. This is significantly faster than the industry standard of approximately one new chip per year.
And the infrastructure that these chips will support is enormous. According to the report, Meta plans to bring about 7 gigawatts of computing capacity online this year and double that to a total of 14 gigawatts by 2027, while Iris expands the graphics processing units (GPUs) the company purchases. nvidia and advanced micro devices Rather than replacing.
Nonetheless, there is a message here for chip investors. One of the AI boom’s biggest spenders has shown a clear path to handing more business to Broadcom, which helps design the chips, and TSMC, which builds them, as the need for Nvidia dwindles somewhat over time.
Nvidia’s chips remain the backbone of Meta’s computing plans. But with all the internal chips Meta distributes, the price pressure Nvidia may eventually feel.
today’s change
(6.16%) $38.92
current price
$670.40
Key data points
market capitalization
work range
$658.01 -$677.85
52 week range
$520.26 – $796.25
volume
2.3 million
average volume
17.3M
gross profit
81.94%
dividend yield
0.33%
Business that pays the bills
If Meta’s core business is underperforming, none of this spending will be much of a problem for shareholders. That’s not true.
Meta’s first quarter revenue increased 33% year-over-year to $56.3 billion, an acceleration from 24% growth in the fourth quarter of 2025 and 22% growth for the full year of 2025. And profits followed. The company posted an operating margin of 41% in the period, and earnings per share of $10.44, up 62% year-over-year, but a one-time tax benefit of $8.03 billion added $3.13 per share. This kind of growth is unusual for a meta-sized company.
“We had a groundbreaking quarter with strong momentum across our apps and the launch of our first model from Meta Superintelligence Labs,” CEO Mark Zuckerberg said during the company’s first-quarter earnings call.
This growth is what pays for its construction. In its first quarter update, Meta raised its 2026 capital spending forecast range to $125 billion to $145 billion (up from the previous range of $115 billion to $135 billion), and forecast second quarter revenue of $58 billion to $61 billion. In the first quarter alone, capital expenditures were $19.8 billion.
Of course, custom chips don’t mean a smaller budget. And the reported schedule may still be behind. Even if Iris works exactly as planned, Meta isn’t cutting back on spending. We’re trying to double our compute capacity and lower the cost of each unit of that capacity. If AI investments ultimately don’t create more engagement and better ad economics, in-house silicon alone may not be enough to offset the challenges companies may face.
But the price investors are paying for this story seems reasonable. As of this writing, Meta trades at about $672 per share, about 24 times earnings and about 19 times forward earnings, despite a 33% increase in revenue last quarter. And unlike chip vendors, Meta also controls the applications to which all computing power is provided. If in-house chips provide even a fraction of the potential cost savings, the company’s massive spending could translate into revenue growth faster than the market currently expects.
To me, the stock looks attractive here. Of course, Thursday’s report probably won’t lower Meta’s AI bill. But it strengthens the argument that the company can control the cost of the build-out, which it would attempt anyway.
