Meta's credit risk indicator hits record high on increased AI spending plan

Key Points:

• The cost of insuring Meta Platforms' debt against default reached a record high as the company raised its capital expenditure forecast to $135-$145 billion for the year, reflecting increased spending on AI development.
• Meta's five-year credit default swaps surged 7.6 basis points to 114.79 bps, marking the largest one-day increase since at least 2025, while its shares fell 6.1% to a six-week low.
• Meta introduced new non-voting shares and reported a $2.12 billion free cash flow deficit in Q3, turning cash flow negative for the first time since 2012, raising investor concerns about dilution and returns on AI investments.
• Investors are growing cautious about debt-driven AI spending amid rising borrowing costs, with significant market losses seen in AI-related firms like CoreWeave, Nebius Group, and major chip stocks, including a sharp decline in the Philadelphia Semiconductor Index.
• Credit default swaps for other tech giants like Oracle and Amazon also approached record or multi-year highs, coinciding with share price declines across major AI and cloud-related companies such as Alphabet, Microsoft, and Amazon.