Meta, Alphabet, Intel Investors Underwater as AI Spending Fears Hit Big Tech
TREE NEWS reports: Investors who bought into recent equity offerings by Meta, Alphabet and Intel are now sitting on paper losses after shares of the three technology giants fell below their issuance prices. The selloff, which began after Alphabet reported weaker-than-expected search advertising revenue on Wednesday and Intel disclosed supply-chain problems in its data-center components, has raised fresh questions about the returns on massive AI infrastructure spending.
Alphabet’s June equity raise, which included mandatory convertible preferred stock and an at-the-market common stock program, was upsized to as much as $85 billion. Its Class A and C shares were priced at $355.20 and $351.80, respectively. By Friday’s close, both classes were trading about 21% below those levels. Intel, which raised roughly $23 billion in August at $95 per share, has seen its stock fall 31% below the offering price. Meta, which completed a $25 billion offering on Monday at $625 per share, saw its shares dip below that level almost immediately and closed Friday about 1.6% lower.
Market Implications
The declines signal a broader repricing of AI-related equities as investors question whether the enormous capital expenditures by hyperscalers will translate into sustained revenue growth. The weakness in Alphabet’s advertising business and Intel’s data-center guidance has intensified concerns that the AI investment cycle may be outpacing commercialization.
For Meta, the timing of its offering has proven costly. The company’s shares had rallied as much as 26% around the launch of its personal AI agent product, Muse, in early September, but those gains have been fully erased. Analysts at BofA noted that investors may worry about Meta’s expanding capital expenditures and its up-to-$60 billion at-the-market equity program, which could pressure the stock. S&P Global Ratings on Friday revised Meta’s outlook to negative from stable, citing uncertainty over capital spending and free operating cash flow, and warned that leverage could exceed 1.0x by 2027, approaching a downgrade threshold for its AA- issuer credit rating.
The broader concern is that equity financing may become more difficult for tech giants as their shares trade below recent issuance prices. Microsoft’s CFO did not rule out future equity issuance, and the company this week completed a $25 billion bond sale that was more than four times oversubscribed. Bloomberg Intelligence’s Mandeep Singh said mega-caps will likely need both equity and debt to fund further capex increases, with Microsoft potentially turning to the equity market if it raises spending next year.
Key Takeaways for Investors
- AI capex scrutiny: Investors are increasingly focused on the payback period for AI infrastructure spending, and any sign of slower monetization could trigger further volatility in tech stocks.
- Financing risk: With shares trading below offering prices, future equity raises by big tech may face higher hurdles, potentially shifting the burden to debt markets and affecting credit profiles.
- Credit watch: S&P’s negative outlook on Meta highlights the risk that sustained high capex and negative free cash flow could lead to rating pressure, which would raise borrowing costs.
- Stock-specific exposure: Near-term pressure may persist for companies with large at-the-market programs or those whose AI investments have yet to show clear returns.
