Meta, IBM Flash Fresh Warning on AI Spending Boom

Meta (META) shares fell 6.6% on Oct. 22 despite beating Q3 revenue estimates ($64.6B vs. $63.41B) and raising AI spending forecasts. Analysts increased price targets, but investors reacted to higher expenses. Other tech stocks like Intel (INTC), AMD (AMD), and Nvidia (NVDA) also declined. Meta's Q4 revenue forecast is $73B-$76B, above estimates.

Meta's stock fell 7% despite Q3 revenue of $64B, exceeding estimates. The company raised its capital expenditure forecast and announced a 2-for-1 stock split. Analysts remain bullish on its AI prospects, but investors are concerned about AI spending. Meta also faces a $25B judgment in New Mexico.

Meta's board agreed to allow Mark Zuckerberg to sell non-voting shares to cover a potential California billionaire tax, ensuring his ownership stake. The tax, if passed, would impose a 5% levy on wealth over $1 billion, potentially costing Zuckerberg over $11 billion. Meta's move aims to secure Zuckerberg's residency in California and raise capital for AI investments, according to regulatory filings.

Meta's board approved a new non-voting Class C stock, with a one-for-one dividend to existing shareholders. The move, disclosed with Q3 results, allows Meta to raise funds without diluting Zuckerberg's control. According to the SEC filing, Meta could raise $700B in equity before Zuckerberg's voting power falls below 50%. CFO Susan Li clarified the 'hundreds of billions' figure is a theoretical maximum, not current plans. Zuckerberg's voting power is about 60.6% as of October 1.

Meta Platforms and other AI-focused companies saw significant share price declines after Meta announced plans to issue new shares to fund AI spending. Meta's shares fell 8%, while Nvidia dropped 4% and Lam Research plunged 10%. Investors are concerned about the rising costs and uncertain returns of AI investments, with Meta reporting negative free cash flow for the first time in over a decade.

Meta shares fell 6% Thursday after reporting a negative free cash flow of $2.12 billion and raising its capital expenditure forecast to $135-145 billion. Investors reacted to increased AI spending and rising credit default swap costs. The company introduced a new nonvoting stock class to support future growth and retain CEO Mark Zuckerberg.