AI Investment Payback Fears Trigger US Tech Sell-off: Meta's Cash Gap Widens, OpenAI Cuts Fundraising Valuation Target
Massive AI capital expenditures are straining free cash flow, leading to a sharp drop in US tech stocks and a reduction in OpenAI's fundraising valuation target.
On October 22, US technology stocks suffered a significant correction amid growing concerns over the ability to recoup massive investments in artificial intelligence. According to Reuters and the Financial Times, the Nasdaq Composite Index fell 2.60%, while the Philadelphia Semiconductor Index plunged 6.7%. Shares of Meta and AI cloud provider CoreWeave dropped approximately 7% and 10%, respectively. Matthew Maly, Chief Market Strategist at Miller Tabak, noted that fears about the longer-than-expected time required to recover AI investments triggered the sell-off.
Although Meta's revenue grew by 26% year-over-year in the third quarter, its capital expenditure on data centers and equipment exceeded operating cash flow by $2.12 billion. The company raised its full-year 2026 capital expenditure guidance from $130-145 billion to $135-145 billion and announced plans to issue new non-voting shares to raise funds, sparking concerns among shareholders about equity dilution.
CoreWeave, which provides compute servers to companies like OpenAI and Microsoft, has seen its debt burden increase significantly. Reports indicate the company's total debt is approaching $50 billion. In the second quarter of this year, despite generating $2.575 billion in revenue, its net interest expense reached $640 million, accounting for roughly one-quarter of revenue, with a net loss of $626 million. Bank of America analysts estimate that CoreWeave may need to raise an additional $20 billion to fulfill existing customer contracts.
In the private market, OpenAI is seeking to raise $30 billion ahead of an IPO. However, according to the Financial Times, investor enthusiasm has cooled compared to previous rounds, prompting OpenAI to lower its target valuation for this round from $1.4 trillion to $1.25 trillion, a decrease of approximately 10.7%. Some investors indicated they would wait to see Anthropic's public offering price before committing. This adjustment reflects a decreasing tolerance in the capital markets for high valuations of AI startups.