Meta Platforms Just Delivered Great News to AI Stock Investors

In recent weeks, Meta Platforms (NASDAQ:META) seems to have emerged as a top driver of the AI trade.

First, in September, the company launched its new Muse personal AI agent, driving a surge in the stock and the broader AI sector as Muse shot to the top of the download charts on Apple and Android.

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Then, following the company’s second-quarter earnings report, the stock plunged after it reported its first quarter with negative free cash flow, as investors took a skeptical stance toward its spending plans on AI infrastructure.

In that earnings report, Meta also announced that it would create a new class of non-voting shares, intended to help it raise money to fund its AI ambitions, and the company isn’t wasting any time doing so.

Image source: The Motley Fool.

Meta cashes in

So far this week, Meta has announced multiple stock offerings, including a $22.5 billion offering, which was upsized to $25 billion. It is also planning to sell $12.5 billion in preferred stock and $60 billion of the new non-voting Class C stock, totaling $97.5 billion in new funds.

Investors have been jittery about the AI trade due to rising interest rates, including a panic over CoreWeave’s bond yields going as high as 15%, which triggered a sell-off in other neocloud stocks and AI infrastructure stocks like Oracle.

Investors are worried that rising rates and a tight credit market will stunt the growth of AI infrastructure at a time when these companies are ramping up spending, and Elon Musk even commented on the challenges with finding financing recently, which he thought would pressure smaller companies. Space Exploration Technologies recently raised $40 billion through Apollo Global Management, a large investment firm.

That conclusion may explain why Meta is seeking to tap the equity market for financing rather than the debt market, but the good news for AI investors is that it isn’t having any trouble raising cash.

Meta investors are lining up

According to media reports, Meta’s offering was oversubscribed by five times, meaning the company could have sold $125 billion in stock if it wanted to.

Among the investors in the funding round were Nvidia and AMD, as they expect Meta to spend some of that money on their chips.

That type of demand paints a much different picture from Musk’s comments about the credit market, and it likely signals that demand for AI stocks and funding for AI infrastructure remains strong.

Meta stock is cheap at the moment, following its post-earnings sell-off, trading at a price-to-earnings ratio of around 21, and Wall Street is clearly interested in buying the stock here even if it sold off after earnings.

What’s notable about that $125 billion in total demand is that it represents $100 billion in excess demand for exposure to AI, or at least to Meta. Some of that money could go to Anthropic when it seeks to go public at a valuation of around $2 trillion next month, and some of it could go to Meta’s next round.

Meta’s move could persuade more AI stocks to tap the equity markets to raise money. Of course, not every stock has the luxury of diluting shareholders by roughly 5% to raise $95 billion, and neocloud stocks like CoreWeave can’t do that.

Still, the demand is a positive sign for AI investors and confirms that the equity-raising strategy will work, at least for companies large enough to do so.

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Jeremy Bowman has positions in Advanced Micro Devices, CoreWeave, Meta Platforms, and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Meta Platforms, Nvidia, and Oracle. The Motley Fool has a disclosure policy.

Meta Platforms Just Delivered Great News to AI Stock Investors was originally published by The Motley Fool