Meta plans $95bn stock offering to help cover AI expansion
Meta has announced a $95bn fundraising to cover its AI expenditure, while Elon Musk warned that funding for smaller AI companies is drying up.
The owner of Facebook, Instagram and WhatsApp is a leading investor in AI and is ploughing multibillion-dollar sums into datacentres, the central nervous systems of the technology. Meta's announcement on Monday came after Musk added to the pressure on "neocloud" datacentre providers – which lease out computing power to AI companies – by saying the sector faced "death and consolidation" amid concerns over the sustainability of their funding.
Two-part fundraising strategy
The Meta fundraising will come in two parts. In the first, the company plans to raise $35bn through new "underwritten public offerings" – a sale of company stock. This offering has some big name backers, with chipmakers Nvidia, AMD and Broadcom all showing interest in taking part. These "cornerstone investors" could buy up to $5bn of the stock on offer.
In the second part, Meta also plans to launch a $60bn "at-the-market offering" in which it will sell new common stock to investors at the going market rate in future. That offering involves selling Meta's new class C stock, which it announced it was creating last week. These class C shares do not have voting rights, so can be sold without diluting Zuckerberg's control of the company.
Market reactions and sector concerns
Shares in Meta rose in premarket trading on the news. However, other companies in the AI sector found themselves under further pressure. Shares in CoreWeave and Iren dropped more than 2% in premarket trading after Musk said more than 200 neocloud firms were in trouble.
As of the past few weeks, debt markets have almost entirely shut off access to money for any company that doesn't have substantial revenue independent of AI data centers
Musk added that the 200+ neoclouds were going to see "guppy-level death and consolidation," drawing an analogy with the survival prospects of the guppy fish. The venture capitalist Chamath Palihapitiya had earlier written that neoclouds were "disorganized and poorly capitalized".
Financial stability questions
Fears over the financial stability of neocloud businesses are focused on their high levels of borrowing – approximately $35bn at CoreWeave, for example – and whether the AI market will grow fast enough to service it. CoreWeave's chief executive, Michael Intrator, reportedly sent an internal memo to employees saying that some investors had not understood the $30bn company.
Neil Wilson, an analyst at Saxo UK, said the differing premarket reactions showed investors were more willing to support the AI investment plans of financially robust companies. "Meta's not going to struggle to service debts and can lean on equity raises to minimise debt too," he said. SpaceX separately reported a $40bn deal with Apollo Global Management to lease chips to power AI datacentres.
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