Meta Platforms (NASDAQ:META) has been the hottest of the “Cloud Czars” in 2023, with its stock up 125%.

The other Czars, who among them own the bulk of the world’s hyperscale data centers, include names like Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and Apple (NASDAQ:AAPL). Their stocks are also up, but not by half as much.

Meta is the smallest of the Czars by market cap, still at under $700 billion. Investors see it driving more of its revenue from AI-influenced applications than rivals. It has strength in consumer applications like Facebook, Instagram, and WhatsApp that can use it.

Meta has also announced it will open-source key AI technologies and draw developers from around the world.

The Meta Pivot

The reason for Meta’s outperformance is the Generative AI “hype cycle.” The hype cycle is a term coined by market researchers at Gartner Group (NYSE:IT), illustrating what happens when new disruptive technologies emerge. Early announcements, Gartner writes, lead to a “peak of inflated expectations,” followed by a “trough of disillusionment,” then a “slope of enlightenment,” and finally, productivity.

These are the early days of the AI boom. Stocks have yet to reach their speculative peak. But Meta is already selling for nearly 33 times earnings and nearly six times last year’s sales.

Before ChatGPT was announced last November, Meta CEO Mark Zuckerberg was spending 10s of billions of dollars on the “metaverse,” digital avatars in a virtual world with no market. After the announcement, he pivoted to AI but cut the overall budget in what he called a “year of efficiency.”

The results were not yet apparent in the company’s first-quarter earnings report. Net income was down 24% from a year earlier, even with revenue up 3%. But the expense hike included $1.14 billion in one-time charges from the company’s restructuring. Analysts expect higher earnings this quarter and acceleration from there. The numbers were good enough to send shares up 10% the next day and keep them rising.

The Meta Strategy

The New York Times and the other Czars call Meta’s AI strategy “dangerous,” but it’s 25 years old and proven to work.

Meta open-sourced the code to its large language model, called LLaMA, under Version 3 of the GNU General Public License (GPL).

Meta’s rivals have gone to Congress for relief, winning bipartisan support on fears that AI could influence elections by delivering fake information that looks real.

Since releasing LLaMA, Facebook has also introduced a speech translation system, a computer vision model, and an AI music generator.

These will be powered by a Meta line of computer chips. Because Meta and other Cloud Czars control their own data centers, some analysts see the chip efforts as a threat to mighty Nvidia (NASDAQ:NVDA).

The Bottom Line

Analysts have fallen in love with Meta again. Of the 43 following it, 38 now tell investors to buy the stock.

But the hype cycle carries a warning. At some point, a failure to deliver results will cause analysts to lose faith, sending the price of AI stocks plummeting. Meta will not be immune. Its first quarter results also show that AI has not yet achieved any meaningful financial results. Profits are down.

In addition to the risk of government action against open-sourced AI, there’s also the question of whether AI is or should be a consumer technology at all. There is no business model for generative AI other than selling software. Meta doesn’t participate in this because it chose to open-source its software.

The slough of disillusionment lies ahead.

At the time of publication, Dana Blankenhorn owned shares in NVDA, AMZN, MSFT, AAPL and GOOGL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.