Meta Shares Slide Nearly 7% as Massive AI Spending Drags Free Cash Flow Into Negative Territory

Meta shares slumped nearly 7% on Thursday as the social media giant revealed negative free cash flow in its third-quarter earnings report while simultaneously raising the floor of its projected capital expenditures for the full year. The significant market reaction highlights mounting investor anxiety over the staggering financial commitments required to sustain the ongoing artificial intelligence boom, even as the tech conglomerate continues to post robust top-line revenue growth across its family of apps.

The downward pressure on Meta’s stock was accompanied by notable stress in the debt markets. The spread on the social media giant’s five-year credit default swaps reached all-time highs on Thursday, serving as a clear signal of growing credit concerns from institutional investors and bondholders as the company leans deeper into its ambitious artificial intelligence spending plans. Wall Street has grown increasingly sensitive to the sheer scale of infrastructure investments mandated by generative AI development, and Meta’s latest financial disclosures underscore the immense capital outlays necessary to build, power, and maintain next-generation data centers and computing clusters.

Reflecting this accelerated expenditure trajectory, Meta announced that it now expects its full-year capital expenditures to range between $135 billion and $145 billion. This marks a notable upward revision from its previous forecast floor, shifting the bottom of the range from $130 billion to $135 billion. The relentless expansion of infrastructure budgets has begun to take a direct toll on the company’s liquid financial position, with free cash flow coming in at a negative $2.12 billion during the third quarter.

Amid these escalating capital demands and shifting market dynamics, Meta revealed a strategic corporate maneuver during its earnings release. The company announced that it would create a new class of nonvoting Class C common stock. According to regulatory disclosures, the primary purpose of this newly minted stock structure is to maintain the company’s long-standing "founder-led structure" while simultaneously providing Meta with the added financial flexibility and capability to finance its future growth initiatives without diluting core voting control.

The regulatory filings also shed light on internal corporate governance and executive positioning tied to broader macroeconomic and legislative trends. Meta disclosed that CEO Mark Zuckerberg could potentially leave the state of California if the proposed "California Wealth Tax" were to pass into law. According to the SEC filing, Zuckerberg could become personally liable for a significant, multi-billion-dollar tax payment based on his substantial ownership stake in the company should such legislation be enacted. However, the filing noted that Zuckerberg was ultimately convinced to stay in California following the implementation of the company’s new stock plan, which secures his foundational alignment with the firm while navigating the complex regulatory and tax landscape.

Despite the investor apprehension surrounding capital expenditures and cash flow metrics, Meta’s core business operations demonstrated formidable strength during the quarter. Revenue for the social media giant jumped 26% in the third quarter compared to the same period a year ago, coming in at $64.60 billion. This performance surpassed the consensus expectations of Wall Street analysts, who had projected revenue of $63.37 billion. Earnings per share were reported at $3.83, though it remained unclear whether that specific figure was directly comparable with the $5.75 per share that analysts had originally been looking for amid shifting accounting treatments and corporate restructuring.

The broader financial narrative captured by Thursday’s market sell-off underscores a critical juncture for Big Tech. Companies like Meta are caught in a high-stakes balancing act: they must aggressively fund the generative AI infrastructure race to secure long-term market dominance, yet they must do so while managing near-term shareholder skepticism regarding negative free cash flow, ballooning capital expenditure floors, and the broader macroeconomic implications of their multi-billion-dollar bets. As Meta pushes forward into its next phase of technological evolution, the tension between aggressive innovation and capital preservation remains a central theme for investors watching the company’s financial trajectory.

— CNBC’s Jonathan Vanian and Seema Mody contributed to this report.