Meta shares rough week Mike Khouw is buying

Size is a relative matter. The standard Manhattan apartment would seem almost claustrophobic compared to the vast expanses offered by suburban living. A similar dynamic is playing out in the market.

Mega-cap companies are generally defined as those with market capitalizations exceeding $200 billion. Of course, the largest companies are another order of magnitude larger than that. For example, Meta, which reported stellar earnings this week, has a current market capitalization of $1.65 trillion.

But concerns about its AI buildout expenses wiped $135 billion from its market cap in just four sessions, or put another way, roughly the value on and entire Uber. Market cap is one way to understand how big these companies are, but another is by examining the size of their operations, and their opportunities.

Consider Muse.

Meta’s personal AI agent is designed to be more of an active digital assistant than a conventional conversational chatbot. Muse can open browsers, fill out forms, send emails, schedule appointments, book travel, and (potentially) even make purchases.

To understand how large an economic opportunity this represents for the company, consider what something like that might be worth. $5 per month per user? (Not in subscription fees necessarily, mind you, just monetizable economic value). That seems a bit low for something so powerful. $10/month? Quite realistically. Then consider the size of Meta’s ecosystem’s daily active user base across Facebook, Instagram, WhatsApp, and Messenger. That number is truly “mega”: 3.6 billion, supposedly counting each person only once. If we assume that each of those individuals has and uses a global phone – 5.86 billion unique people on the planet do – that means Meta interacts at least once with 61.4% of them each day.

If Muse is worth $120/year and reaches just 1% of Meta’s Daily Active People, that’s $4.3 billion/year. If it’s worth half that amount, but reaches 20% of their daily actives, that’s $43.2 billion/year. The first number seems absurdly low as a back-of-the-napkin figure, but the $135 billion valuation loss in less than a week is offset by $20 billion in revenue (the company trades at just under 7x revenue). If Muse can generate $30 billion in revenues, it is a megacap company in its own right!

So why has the company sold off if everything is so rosy? A massive $25 billion lawsuit in New Mexico, a potential PR headache related to a deal struck between the company and its founder to resolve potential tax liabilities associated with a possible billionaire’s tax in California that preserves his voting rights, and, of course, concerns about debt, on the balance sheet and off, to finance the enormous investment that the company is making (and expanding) in AI, and AI jitters generally. But at 20x FY earnings, and less than 17x FY2027 estimated earnings, the company is now pricing a lot of that in. Those headaches create headwinds, but the underlying story provides support.