Meta's credit risk indicator hits record high on increased AI spending plan (updated)

Nebius NV

Today 16:52

Adds details on free cash flow in paragraph 4, analyst comment in paragraphs 5-6; updates prices throughout
By Shashwat Chauhan
Oct 22 (Reuters) - The cost of insuring Meta Platforms' debt against default touched an all-time high on Thursday, as investors grappled with concerns about its plan to spend more on its AI build-out. 
Meta raised the lower end of its annual forecast for capital expenditure to between $135 billion and $145 billion this year, up from $130 billion to $145 billion expected previously.  
As a result, five-year credit default swaps FBA5YUSAX=MG widened 7.6 basis points to a record high of 114.79 bps and were set for its biggest one-day jump since at least 2025, Markit data showed. Its shares META.O were last down 6.1% at $655, hitting their lowest in about six weeks. 
Meta also introduced new non-voting shares and reported a free cash flow deficit of $2.12 billion in the third quarter, turning cash flow negative for the first time since 2012.
"The market has been questioning whether all the spending on AI is having the type of returns that the market originally expected," said Steve Sosnick, chief market analyst at Interactive Brokers.
     "In Meta's case, investors are interpreting the new non-voting shares as a backdoor for issuing more stock and diluting holdings eventually so I think that's adding to this aggressive selloff."
Investors are growing more cautious about debt-fueled AI spending in the face of rising borrowing costs, with neocloud firm CoreWeave CRWV.O at the center of a storm that has erased more than 34% of its market value this month.
CoreWeave shares slumped 8.4% on Thursday, while rival Nebius Group NBIS.O and data center operators IREN IREN.O and Applied Digital APLD.O also saw heavy losses.
US chip stocks, widely viewed as one of the biggest winners of the AI boom, also sold off heavily with the Philadelphia Semiconductor Index .SOX set to erase more than $688 billion in market value on Thursday alone. 
Five-year credit default swaps of hyperscaler Oracle ORCL.N were also close to a record high, while that of Amazon.com AMZN.O held near its highest level since March 2020, according to S&P Global Market Intelligence data. 
Oracle and Alphabet GOOGL.O shares dropped more than 2%, while Microsoft MSFT.O slipped 1.3% and Amazon fell 3.7%. 



 (Reporting by Shashwat Chauhan and Tharuniyaa Lakshmi in Bengaluru; Editing by Arun Koyyur)
 ((Shashwat.Chauhan@thomsonreuters.com;))