Meta shares fell 7% a day after the company said it would issue a new class of shares to fund AI spending. The selloff spread to Nvidia, chipmakers and the Nasdaq Composite, as investors weighed the rising cost of the AI buildout.
Investors sold Meta Platforms and other AI-linked companies on Thursday, a day after Meta said it would issue a new class of shares to help raise funds. Meta is one of the hyperscalers spending billions on data centers and other infrastructure for the AI boom.
Meta fell 7%, its largest drop since July. Nvidia, a bellwether of the AI trade, dropped 4%, and the Nasdaq Composite lost 2.6%, its largest decline since June 5.
Meta turns to non-voting shares and a higher spending range
Meta said it would use new Class C shares, which hold no voting power, to fund AI spending and other priorities. It also raised the low end of its annual spending forecast to $135 billion from $130 billion, with the high end unchanged at $145 billion.
That level of spending will require lots of investor participation in coming stock sales. Meta reported negative free cash flow of $2.12 billion in the third quarter, against positive free cash flow of $10.63 billion a year earlier, and it was the first cash burn at Meta in more than a decade.
Robert Pavlik of Dakota Wealth said investors worry that the spending is "just sort of a bit of a money pit", according to Reuters.
Selloff spreads across chips and AI infrastructure
Sentiment also suffered from a 12% plunge in Lam Research after its results, and the Philadelphia Semiconductor index lost 6.7%. Neocloud names fell too: Nebius slid 7% and CoreWeave dropped 10%.
Credit default swaps, which track perceived default risk for the debt of the biggest AI players, have largely risen over the past year, with Meta's hitting a record on Thursday. Investors also sought the safety of Treasury bonds, sending those prices higher.
Wall Street now expects that rising borrowing costs will motivate tech companies like Meta to sell billions of dollars in stock to fund the next round of building, and that dilution could pressure share prices.
Source: Reuters via Investing.com
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