Meta Platforms lost more than 7 per cent of its market value on Thursday after raising its AI spending plans again and announcing a new share class to help pay for them. At the same time, the price of insuring its debt against default climbed to an all-time high.
Key takeaways
- Meta shares fell more than 7 per cent on Thursday, even though the company reported better-than-expected results and a strong forecast.
- Its five-year credit default swaps reached a record 114.79 basis points.
- Meta raised the lower end of its annual capital spending forecast by $5 billion, to a range of $135 billion to $145 billion.
- If the losses hold, about $114 billion in market value would be wiped out.
Strong earnings are usually enough to lift a stock. On Thursday, they were not enough to calm investors who are growing anxious about how much money the AI race is consuming.
What happened to the stock?
Meta shares dropped more than 7 per cent on Thursday. Investors reacted badly to two things: another increase in the company’s annual AI spending forecast, and a plan to sell new stock to help fund it. The selloff came despite results that beat expectations and a confident outlook.
As of Wednesday’s close, Meta shares had gained more than 5 per cent so far this year. If Thursday’s losses hold, the company is on track to shed roughly $114 billion in market value.
A record price for insuring Meta’s debt
The credit market sent a similar message. The cost of insuring Meta’s debt against default hit an all-time high. The company’s five-year credit default swaps (CDS) traded at a record 114.79 basis points.
For context, a CDS works like insurance for bondholders. A reading of about 115 basis points implies an annual cost of roughly $1.15 million to protect $100 million of debt. A higher number means the market is paying more for that protection.
The move is the latest sign that concern over the price of the AI race is spreading from stock markets into credit markets.
Why the spending worries investors?
On Wednesday, Meta lifted the bottom of its capital expenditure forecast by $5 billion, to between $135 billion and $145 billion. The money is meant to support a broad plan to place its Muse agent at the centre of Meta’s AI strategy. The aim is to take a technology that has so far caught on mainly with businesses automating coding and turn it into a consumer product that earns money.
The scale of spending has had a visible effect on Meta’s finances. It has pushed the Facebook and Instagram owner into its first cash burn in more than a decade.
A new share class to pay for it
To help fund the push, Meta plans to 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 pay for AI investments, acquisitions and employee compensation. Issuances could begin as early as fall 2026.
The company’s filing also noted that issuing shares helps avoid debt financing, which could adversely affect Meta’s credit ratings.
Part of a wider pattern
Meta is not the only AI-heavy company under pressure. Investors have been uneasy about mounting AI-related debt throughout October, selling shares of “neocloud” companies such as CoreWeave and Nebius, which are spending several times their revenue on data centres to serve a growing backlog of orders.
Experts say heavy borrowing leaves AI companies exposed if demand drops sharply. The chips they buy also lose value within five or six years, which forces another round of spending just to stay competitive.
A different reading of the credit signal
Not everyone sees the CDS jump as a warning about Meta’s finances. Shay Boloor, chief market strategist at Futurum Equities, said the move was not necessarily a sign that fundamentals are weakening. In his view, the rise in CDS spreads may have more to do with banks hedging their exposure to Meta’s large AI debt financing than with any real risk of default.
Why it matters?
Meta’s day shows how the market’s mood on AI spending is shifting. Investors once rewarded big investment plans. Now they are asking who pays for them, and how. A stock drop, a record CDS reading and a plan to issue shares all in the same week suggest that the funding question is becoming as important as the technology itself.
Frequently asked questions
Why did Meta shares fall on Thursday?
- Shares fell more than 7 per cent as investors reacted to another increase in Meta’s annual AI spending forecast and a plan to sell new stock to help pay for it.
What are Meta’s credit default swaps, and why do they matter?
- A credit default swap is a form of insurance against a borrower defaulting on its debt. Meta’s five-year CDS hit a record 114.79 basis points, which signals that the market is paying more to protect against the risk of default.
How much will Meta spend on AI?
- Meta raised the lower end of its annual capital expenditure forecast by $5 billion, to a range of $135 billion to $145 billion.
What is Meta’s Class C stock?
- It is a new class of non-voting shares that Meta plans to create. The company said it could raise hundreds of billions of dollars over several years, with issuances beginning as early as fall 2026.
Is Meta at risk of defaulting on its debt?
- Not necessarily. Shay Boloor of Futurum Equities said the CDS surge may reflect banks hedging their exposure to Meta’s AI debt financing rather than real default risk.
