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Speculation is growing that Meta will issue new stock to finance a massive buildout of AI infrastructure – even as Wall Street grows increasingly skittish over whether the big bets will pay off, On The Money has learned.
Shares for the holding company for Facebook, YouTube and Instagram have been whipsawed as investors scrambled to digest Mark Zuckerberg’s lavish AI spending. One reason for optimism has been the introduction of Meta’s new AI personal assistant platform, Muse, spearheaded by wunderkind acqui-hire Alexandr Wang.
And as I’ve pointed out, the company hasn’t done a big secondary stock sale and chose to finance its AI expansion through debt issuance, thus keeping the dilution — which lowers the share price — at bay.
But traders known as short sellers – who can make a few bucks betting on a possible dilutive and stock-price depressing event like a secondary — are sensing that one is looming. The sentiment has surely reached the analyst community, so expect a question or two or three on this matter later on Wednesday when Meta announces third-quarter earnings.
A spokesman would neither confirm nor deny any plans for a secondary.
Larry McDonald of the Bear Traps Reports, which is closely watched by the short-selling community, tells me that his sources are starting to bake in a “monster secondary” coming soon. The thinking among the shorts, he says, is that Meta has no choice but to sell stock given the enormity of his AI spending – $145 billion this year alone as it sits on $90 billion in cash.
Zuck may want to time the sale not only with the recent upswing in Meta stock (it’s up more than 6% year to date despite the see-sawing) but also euphoria that is likely to surround the upcoming Anthropic IPO, which we reported is expected to follow the filing of an S-1 prospectus in the coming days. The sale is expected to hit the market sometime around Thanksgiving.
But with increased supply comes lower share prices, hence the short-selling bets against Meta. For those precise numbers I turned to my partner in the Risk and Return podcast, Bob Sloan of S3 Data.
Bob’s data shows that so-called “short interest positioning” in Meta is up over 20% or 33 million shares since mid August, which roughly tracks the recent volatility in shares as shorts wager something is coming where they can make money.
As most readers on On The Money know, diverging opinions – people going long and short on stocks – is the mother’s milk of price discovery. The short thesis on Meta certainly makes sense. Then again, so does the long thesis with Muse coming on line, the company’s increased productivity thanks to AI and recent strategic investments including the popular Ray-Ban glasses.
In the words of someone smarter than me: We report, you decide.