Meta Platforms has become the clearest test of investors' patience with the cost of artificial intelligence. The company's shares fell about 7 per cent on Thursday, 22 October, after its third-quarter results showed spending on AI infrastructure outrunning the cash generated by its advertising business.
Revenue rose 26 per cent year on year to $64.6bn, ahead of analysts' expectations of about $63.4bn. But Meta raised the lower end of its full-year capital expenditure guidance to $135bn, from $130bn, leaving the top of the range at $145bn. Free cash flow for the quarter was negative, at minus $2.12bn.
Credit markets take note
The reaction spread beyond the shares. The cost of insuring Meta's debt against default through five-year credit default swaps reportedly hit a record, a sign that bond investors are pricing in more risk as technology groups fund AI data centres partly with borrowing.
Meta also disclosed plans to create a new class of non-voting Class C shares, which would preserve the company's founder-led control structure while giving it more flexibility to finance growth.
A wider question
The sell-off weighed on the wider technology sector, with investors also unsettled by a 20 per cent cut to Tesla's capital spending plans. Attention now turns to Alphabet, Microsoft and Amazon, which report this week, and to whether their cloud and AI revenue is growing fast enough to justify similar outlays.
