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The seemingly endless gusher of capital that\u2019s been showered on Silicon Valley during the AI boom may be coming to an end soon as Wall Street pushes back on massive spending plans.<\/p>\n
Following a brutal selloff in tech stocks over the past week, OpenAI slashed the target on its latest fundraising round to $20 billion from $30 billion, sources told the Financial Times. That also cut its expected valuation to $1.25 trillion from $1.4 trillion.<\/p>\n
The funding round was also upstaged by Anthropic, according to the report, as OpenAI\u2019s arch-rival prepares to go public next month. Ahead of its IPO, Anthropic filed an S-1 on Monday that showed revenue has soared and its cash flow turned positive in the first half of this year. <\/p>\n
OpenAI didn\u2019t immediately respond to a request for comment.<\/p>\n
The timing couldn\u2019t have been worse. Quarterly earnings reports from hyperscalers this week spooked investors. Alphabet\u00a0saw its cash flow sink deeper into negative territory in the third quarter, with the Google parent also joining\u00a0Meta\u00a0and\u00a0Amazon\u00a0in charging ahead with massive spending plans. On Thursday, Alphabet fell about 12%, its worst day on record.<\/p>\n
To be sure, there were other positive signs as well, in addition to Anthropic\u2019s bullish S-1.\u00a0Microsoft\u00a0reported strong cloud growth and stayed cash flow positive, though it said its capital spending will accelerate, while AI chip maker\u00a0SK\u00a0Hynix blew away earnings forecasts.<\/p>\n
But the narrative had already turned bearish, especially after AI debt fears sent shares and bonds of \u201cneocloud\u201d companies tumbling earlier this month.<\/p>\n
At the same time, OpenAI was seeking more capital just as other AI giants tapped financial markets heavily. This past week alone, Elon Musk said SpaceX closed $40 billion in debt financing, Meta announced plans to raise $95 billion in equity, and Microsoft raised $25 billion in a bond sale.<\/p>\n
The prospect of hyperscalers continuing to hemorrhage funds was too much for S&P Global, which cut its outlook on Meta to \u201cnegative\u201d from \u201cstable\u201d late Friday, citing negative cash flow and uncertainty around capital expenditure \u200bplans.<\/p>\n
The credit ratings agency maintained Meta at AA- but warned \u2060the social media leader\u2019s leverage could top 1.0x as soon as 2027, which is the downgrade threshold for the current rating. That\u2019s up from about 0.1x in 2025 and primarily reflects its strategy of leasing data center capacity rather than from its debt issuance.<\/p>\n
Meanwhile, S&P sees Meta\u2019s capex reaching $140 billion this year, topping $225 billion in 2027, hitting $252 billion in 2028, and then flattening out from there. As a result, it expects free operating cash flow to remain negative: -$22 billion this year, -$71 billion in 2027, and -$39 billion in 2028.<\/p>\n
Of course, other hyperscalers are spending heavily and running cash deficits, but S&P also said Meta\u2019s ability to monetize its AI investments is more limited than that of its peers. <\/p>\n
\u201cWhile we believe the company intends to monetize these investments via improved advertising tools that support faster ad revenue growth, as well as from the development of new revenue streams stemming from its introduction of agentic apps such as Muse, it is unclear when these revenue streams will generate material contributions that exceed their rising costs over the next few years,\u201d S&P said. <\/p>\n
Meta\u2019s rivals, however, are monetizing their data centers by leasing compute capacity, including to frontier model labs and enterprise customers, it added.<\/p>\n
In a statement to Fortune, a Meta spokesperson said the company disagrees with S&P\u2019s assessment of its AI monetization capabilities, pointing to \u201csignificant product and business opportunities\u201d ahead. <\/p>\n
\u201cMeta is already delivering stronger engagement, better recommendations, and greater returns for businesses as a result of AI investments,\u201d the spokesperson continued. \u201cWe believe the technology and infrastructure we\u2019re building now will open new revenue streams, create long-term shareholder value, and bring us closer to delivering personal superintelligence to everyone.\u201d<\/p>\n
The bearish environment on Wall Street also comes as rising bond yields have sent borrowing costs sharply higher, the political backlash against data centers is expected to help Democrats retake Congress, and the Iran war could re-escalate after midterm elections.<\/p>\n
Still, some bullish voices aren\u2019t convinced the AI boom is about to go bust, and even think some retrenchment is a good thing.<\/p>\n
According to market veteran Ed Yardeni, the AI investment boom faces financial, physical, and political constraints. If any of these constraints worsen, stocks could dive further, especially considering that AI is now a major driver of corporate earnings and GDP growth, he said in a note this week.\u00a0<\/p>\n
\u201cHowever, we view these constraints as healthy for the durability of the AI boom!\u201d he added.<\/p>\n
For example, if the supply of capital doesn\u2019t flow as easily, it could lead to more efficient allocation, lowering the risk of overinvestment. Yardeni expects hyperscalers to retain access to financing\u2014thanks to their strong balance sheets\u2014and keep spending.<\/p>\n
In his view, it all comes down to the U.S. economy, which he said has performed remarkably well over the past few decades. Even the midterm elections are unlikely to derail it, regardless of which party controls Congress.<\/p>\n
\u201cFurther AI jitters therefore could set up buying opportunities rather than signal the end of the boom,\u201d he said.<\/p>\n
#outlook #OpenAI #cuts #fundraising #goal #Meta #credit #warning #cash #flow #spending<\/p>\n","protected":false},"excerpt":{"rendered":"
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