Meta's stock is heading for its worst day since July. Its credit risk has peaked due to AI spending
Meta's plans to increase spending on AI infrastructure have led to a rise in the cost of its credit default swaps
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The credit risk indicator for Mark Zuckerberg’s Meta Platforms rose to a record high on Thursday, while its bonds and shares fell in price: The company’s plans to increase capital expenditures have once again sparked market concerns that big tech companies will issue even more debt to build AI infrastructure in an already oversaturated market, according to Bloomberg.
During trading on October 22, Meta's stock fell 6.3% and is on track for its worst day since late July.
Details
According to ICE Data Services, the cost of five-year credit default swaps (CDS) on Meta’s debt—which rises in tandem with investor anxiety—increased by 8.9 basis points during trading, reaching approximately 119.3 basis points—the highest level since trading in this instrument began about a year ago, the agency notes. On Thursday, default insurance on the debt of other hyperscalers and chipmakers also became more expensive, including CDS on bonds issued by Oracle, Microsoft, and Broadcom.
In addition to the rise in credit default swap prices, Meta’s bonds have lost value relative to U.S. Treasury securities, the agency notes. According to data from the Trace system, the risk premium on its 5.25% coupon bonds maturing in 2036 rose by 0.06 percentage points (6 basis points) to 1.2 percentage points.
Context
The rise in the cost of default protection was driven by the company’s plans to increase capital expenditures on artificial intelligence infrastructure, Bloomberg notes. Meta announced yesterday that it has committed to leases and contracts totaling approximately $825 billion, many of which are related to computing power and AI infrastructure. In July, the company had valued these commitments at nearly $700 billion. In addition, Meta raised the lower end of its capital expenditure forecast for this year: it now expects $135–145 billion instead of the previous $130–145 billion. The company did not provide a forecast for next year. Meta’s free cash flow for the quarter turned negative—minus $2.12 billion, compared with plus $784 million in the second quarter and $10.63 billion a year earlier.
This article was AI-translated and verified by a human editor
