Meta’s Credit Risk Indicator Hits Record as AI Spending Rises
?s five-year credit default swaps reached a record 114.79 basis points on Thursday as investors weighed higher AI spending and a quarterly free cash flow…
Meta's credit risk indicator reached a record on Thursday as investors assessed the company’s higher artificial intelligence spending plan and a quarterly free cash flow deficit. Five-year credit default swaps widened to 114.79 basis points, while Meta shares fell 6.1 per cent to $655, their lowest in about six weeks, according to data cited by Channel News Asia.
The move reflects investor concern about how Meta will fund its AI build-out and whether that spending will deliver the returns the market expected. The company raised the lower end of its annual capital expenditure forecast to between $135 billion and $145 billion, up from a previous range of $130 billion to $145 billion.
Debt protection costs reach a record
Credit default swaps are contracts investors use to protect against a borrower defaulting. The cost of insuring Meta’s debt rose 7.6 basis points, reaching a record 114.79 basis points, Markit data showed. The contracts were set for their biggest one-day jump since at least 2025, the report said.
Meta also reported a free cash flow deficit of $2.12 billion in the third quarter. That marked its first negative free cash flow since 2012. The figures put the company’s investment plans and its current cash generation under closer scrutiny from investors.
Steve Sosnick, chief market analyst at Interactive Brokers, said investors were questioning whether AI spending would produce the returns they had expected. “The market has been questioning whether all the spending on AI is having the type of returns that the market originally expected,” Sosnick said.
Meta also introduced new non-voting shares. Sosnick said investors interpreted the move as a possible route to issuing more stock and eventually diluting existing holdings, adding to the sell-off.
AI spending concerns spread across tech
The pressure was not limited to Meta. Investors have grown more cautious about debt-funded AI spending as borrowing costs rise, according to the report. CoreWeave, described as a neocloud firm, has lost more than 34 per cent of its market value this month. Its shares fell 8.4 per cent on Thursday.
Nebius Group, IREN and Applied Digital also suffered heavy losses. US chip stocks sold off, with the Philadelphia Semiconductor Index set to erase more than $688 billion in market value on Thursday alone, the report said.
Credit risk also moved higher for other large technology companies. Five-year credit default swaps for Oracle were close to a record high, while Amazon.com’s remained near its highest level since March 2020, according to S&P Global Market Intelligence data. Oracle and Alphabet shares fell more than 2 per cent, Microsoft slipped 1.3 per cent and Amazon dropped 3.7 per cent.
For investors tracking the technology sector, the market reaction links the scale of AI investment to two immediate measures: expected spending and available cash. Meta’s revised forecast raised the minimum planned capital expenditure, while its latest quarterly result showed negative free cash flow. Sosnick said concerns about the new share structure added another reason investors were selling.
Meta’s five-year credit default swaps ended the reported move at a record 114.79 basis points.
Source: channelnewsasia.com
