Meta Platforms, parent company of Facebook and Instagram, is raising $30 billion in its largest bond offering ever. The social media giant said Thursday it needs the money to fund the costly expansion of artificial intelligence systems. Meta is going through a period of heavy spending on AI that’s creating big cost pressures. The company has already warned that its spending next year would be “notably larger” than in 2025.
Meta’s stock fell more than 11 per cent on Thursday as investors noted that expenses jumped by 32 per cent, compared to a revenue rise of 26 per cent. In simpler terms, it’s spending more than what it brings in at the moment. Meta is raising the funds through a six-part bond sale with payback periods ranging from five to 40 years. The last time Meta borrowed money this way was in 2022 when it raised $10 billion.
Tech Companies Spending Hundreds of Billions on AI
The sizes of the various notes are between $4 billion and $6.5 billion. Large banks such as Morgan Stanley, Allen & Company and Blaylock Van are managing the sale. Meta last week completed a $27 billion financing deal with Blue Owl Capital, its biggest private money deal ever. That will finance its largest data centre project, called “Hyperion,” in Richland Parish, Louisiana.
Major technology firms such as Alphabet, which owns Google, Amazon, Meta, Microsoft, and CoreWeave are expected to spend an astonishing $400 billion on AI systems this year, according to Morgan Stanley estimates. That is a huge amount of money going into building the computers and facilities needed to power artificial intelligence.
Hiring Top AI Talent Costs a Lot of Money
Meta is also spending aggressively to recruit and retain the best AI researchers and engineers as technology companies fight for skilled workers. For the company’s ambitious and new goals in AI, CEO Mark Zuckerberg himself spearheaded an aggressive talent hiring spree for its newly reorganised AI unit called Superintelligence Labs. Employee pay will be the second largest reason for increased costs next year, particularly AI talent, said Susan Li, Meta’s money chief.
Meta also raised the lower end of its spending outlook to a range of $70 billion to $72 billion this year, from an earlier forecast of $66 billion to $72 billion. That’s billions more than the company thought it would spend just a short time ago. The reports about Meta’s bond sale caused some selling of U.S. Treasury bonds as investors adjusted their positions. Investors have recently been flocking to large new corporate bond issues because there’s wider uncertainty in stock markets at the moment.
News At Glance
- Meta raises $30 billion in the largest bond offering ever to fund AI expansion
- Company stock fell 11% as costs increased 32% while revenue was up only 26%
- Tech companies expected to spend $400 bln on AI infrastructure this year
- Meta made a deal of $27 billion last week for a Louisiana data centre project.
- Employee compensation for AI talent is expected to be the second-largest cost increase next year
FAQs
Q: Why does Meta need $30 billion?
Q: To finance the expensive expansion of artificial intelligence infrastructure, including the data centres, computers as well as hiring top AI researchers and engineers.
Q: Where is Meta raising this money?
A: By selling bonds – that’s borrowing money from investors who get paid back over five to 40 years with interest.
Q: Why did Meta’s stock drop?
A: Investors are concerned because, although revenue increased 26%, costs went up 32%. It simply means the company is spending more at this point than it’s bringing in.
Q: How much are tech companies spending on AI?
A: Major technology companies, including Google, Amazon, Meta, Microsoft and CoreWeave, are expected to spend $400 billion on AI infrastructure this year.
Q: What’s the biggest cost for Meta?
Q: What is the ranking of some expected cost increases? A: First is building AI infrastructure, like data centres. Second is paying employees for AI talent.
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