Meta's plan to issue new shares to fund AI spending sends Nasdaq tumbling 2.6%

US stocks tumbled Thursday (local time), led by technology shares, as skepticism over AI investment spending resurfaced. Meta's announcement that it plans to issue a new class of shares to fund its AI ambitions deepened concerns about the mounting cost of large-scale AI buildouts.

The Dow Jones Industrial Average edged up 11.89 points, or 0.02 percent, to close at 52,867.98 on the New York Stock Exchange.

The S&P 500 fell 93.74 points, or 1.21 percent, to 7,663.43, while the tech-heavy Nasdaq Composite tumbled 694.00 points, or 2.60 percent, to 26,008.86 — its steepest single-day decline since June.

The broad selloff reflected renewed anxiety over the cost of AI investment at major technology companies and the burden of financing it. Doubts about whether those outlays will ultimately generate commensurate returns also weighed on investor sentiment.

Meta's financing plan was the primary catalyst for the renewed AI skepticism. The company reported third-quarter earnings that beat market expectations, but said it intends to issue a new class of non-voting shares to raise the capital needed to expand its AI investment.

Meta also raised the lower end of its full-year capital expenditure guidance, to a range of $135 billion to $145 billion from a prior range of $130 billion to $145 billion. Its future spending commitments grew to $825 billion from roughly $700 billion in July.

Meta's free cash flow for the third quarter came in at negative $2.12 billion — the first time the company has posted a free cash flow deficit since its listing, fueling concern that AI spending is outpacing its ability to generate cash internally.

"The worry around AI is no longer about the technology itself," said Michael Antonelli, market strategist at Baird Private Wealth Management. "The question is how everyone can raise the money at the same time."

Meta's share price tumbled about 7 percent on the day. Nvidia fell 4.4 percent and Micron dropped 6.3 percent, dragging the Philadelphia Semiconductor Index down 6.7 percent.

SpaceX, which announced its first quarterly profit on Tuesday, fell 9.1 percent. Tesla slid 3.1 percent after reporting earnings that missed market expectations. Selling pressure extended to Alphabet, down 3.2 percent, Amazon, down 4.6 percent, and other large technology companies and data center-related stocks.

Defensive and financial stocks, which face comparatively less pressure from AI spending, bucked the trend and rose as capital rotated out of technology shares into other sectors.

Investors also sought safety in US Treasurys. The yield on the 10-year Treasury note fell 19.3 basis points to 4.952 percent — its largest single-day drop since the US regional banking crisis in March 2023.

A surge in crude oil prices driven by escalating geopolitical tensions in the Middle East added further pressure on equities.

Brent crude topped $113 per barrel after Iran-aligned Houthi rebels in Yemen intensified attacks on Saudi Arabia, reaching its highest level in about five months since May.