Updated version 2 - Meta's stock price drops, default insurance hits record high, AI spending raises investor concerns

Full rewrite

Prathik Jayaprakash/Aditya Soni

Reuters, October 22 - On Thursday, Meta Platforms (META.O) shares fell more than 7%, as investors reacted coolly to the company’s plan to once again raise its annual artificial intelligence spending forecast and to issue new shares to raise funds.

The cost of credit default swaps on the social media giant’s debt also hit a record high, the latest sign that concerns over the cost of the AI race are spreading to the credit market.

Despite better-than-expected results and an optimistic outlook, shares were sold off, highlighting growing investor unease over AI spending—expenditures that are forcing historically cash-rich tech firms into debt. These outlays have also led the owner of Instagram and Facebook to burn through cash for the first time in over a decade.

This month, investors have been on edge due to mounting AI-related debt, dumping shares of “new cloud” firms like CoreWeave (CRWV.O) and Nebius—companies whose data center expenditures now run several times their revenue to meet swelling backlogs of orders.

Experts note that this spree of borrowing makes AI companies vulnerable to sudden drops in demand, all while they hold chip inventories that depreciate within five or six years, forcing them to spend anew to remain competitive.

On Wednesday, Meta raised the lower end of its capital expenditures forecast range by $5 billion, to between $135 billion and $145 billion (link).

This spending is aimed at supporting the firm’s bold plan: putting the popular Muse AI agent at the heart of Meta’s artificial intelligence strategy, and turning a technology primarily deployed in enterprise automation coding into a consumer-facing profit driver.

To support this initiative, Meta will issue a new class of non-voting shares called “Class C”. The company said that over the next few years, it could raise tens of billions of dollars by issuing this share class to fund AI investments, mergers and acquisitions, and employee compensation, with the earliest issue starting in autumn 2026.

The filing also noted that this share issuance helps avoid debt financing since debt financing could negatively affect Meta’s credit rating.

On Thursday, Meta’s five-year credit default swaps (link) traded at a record high of 114.79 basis points.

However, Futurum Equities Chief Market Strategist Shay Boloor said the move doesn’t necessarily indicate a deteriorating core business.

He said the surge in CDS spreads “may have more to do with banks hedging their exposure to Meta’s massive AI debt financing risks than with any actual default risk.”

As of Wednesday’s close, the stock had gained over 5% for the year. If the current slide continues, Meta’s market value could lose about $114 billion.

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