Oct 22 (Reuters) - Meta Platforms shares fell more than 7% on Thursday as investors balked at another increase in its annual AI spending forecast and a plan to sell new stock to help pay for it.
The cost of insuring the social media giant's debt against default also hit an all-time high, the latest sign that fears over the cost of the AI race were spreading to credit markets.
The selloff came despite better-than-expected results and a strong forecast, highlighting growing investor unease over AI spending that is pushing historically cash-rich tech companies to take on debt. That expenditure also pushed the Instagram and Facebook owner to its first cash burn in more than a decade.
Investors have already been on edge this month over the mounting AI debt, dumping shares of neoclouds such as CoreWeave and Nebius that are spending several times their revenue on data centers to serve a growing backlog of orders.
Experts have said that the borrowing binge leaves AI companies vulnerable to any sharp drop in demand while saddling them with chips that depreciate within five or six years, forcing another round of spending to stay competitive.
Meta on Wednesday increased the lower end of its capex forecast range by $5 billion, to a range of $135 billion to $145 billion.
That spending would go towards the company's sweeping plan to put its viral Muse agent at the heart of Meta's AI strategy and turn a technology that has gained traction largely with businesses automating coding into a consumer moneymaker.
To help fund the push, Meta will create a new class of non-voting shares called Class C. The company said it could raise hundreds of billions of dollars over several years to fund AI investments, acquisitions and employee compensation, with issuances beginning as early as fall 2026.
The filing also noted that the issuances helped avoid debt financing which could adversely affect Meta's credit ratings.
On Thursday, Meta's five-year credit default swaps were trading at record highs of 114.79 basis points.
However, Shay Boloor, chief market strategist at Futurum Equities, said the move was not necessarily a sign of deteriorating fundamentals.
The surge in CDS spreads "could have more to do with banks hedging exposure to Meta's massive AI debt financing than actual default risk," he said.
As of Wednesday's close, the stock had gained more than 5% this year. If current losses hold, Meta is set to shed about $114 billion in market value.
(Reporting by Prathik Jayaprakash in Bengaluru, additional reporting by Rashika Singh; Editing by Devika Syamnath)
