NEW YORK — Technology stocks on Wall Street tumbled just one day after a rebound, hit hard by Meta's astronomical artificial intelligence capital expenditure plans. Adding to the pressure, doubts emerged over whether Tesla's capacity to fund AI spending falls short of expectations, even as the company pushes ahead with a merger with SpaceX. SpaceX's third-quarter results, which had helped shake off the shock of credit deterioration at cloud provider CoreWeave, already appear to have lost their effect. With concerns over AI-related debt at Big Tech firms proving difficult to subside, appetite for global risk assets is set to weaken for some time.
Tech Stocks Fall on Meta's Raised Capex Outlook as AI Profitability Comes Into Question
In New York trading on the 22nd, both the Standard & Poor's 500 index and the Nasdaq Composite fell sharply, down 1.21% and 2.60% respectively. Only the blue-chip Dow Jones Industrial Average edged up 0.02%, reflecting the market's defensive tilt. The Nasdaq's decline was its steepest since June 5, when unexpectedly strong employment data raised the odds of a rate increase by the Federal Reserve, sending the index down 4.18%.
Among the largest companies by market capitalization, Nvidia plunged 4.40%. Microsoft fell 2.23%, Amazon 4.57%, Google parent Alphabet 3.15%, TSMC 4.52%, SpaceX 9.14%, Meta 6.98%, Broadcom 4.31%, Tesla 3.08%, Micron 6.26% and SK hynix (000660) 8.07%. Apple, widely seen as lagging in AI, was the only major tech stock to rise, gaining 1.23%.
Capital that flowed out of tech stocks moved into U.S. Treasurys. The yield on the 10-year U.S. Treasury note, the global bond market benchmark, fell as low as 4.939% during the session, dropping below 5% for the first time since the 23rd of last month. The single-day decline was the largest since March 10, 2023. The two-year yield, sensitive to monetary policy, fell 3.63 basis points to 4.648%, while the 30-year yield, a reference for U.S. mortgages, fell 2.78 basis points to 5.286%.
The report that dragged down the market was Meta's capital funding plan, released after the previous session's close. Meta, which shed its reputation as an AI laggard by launching its AI agent Muse on the 8th of last month, again raised concerns about its investment capacity following its earnings release.
Meta said on the 21st that third-quarter revenue rose 26% from a year earlier to $64.6 billion (about 85.7 trillion won). That topped the $63.37 billion estimate compiled by London Stock Exchange Group. The Family of Apps segment, which includes advertising and accounts for most of the company's revenue, grew 26.4% from a year earlier to $64.16 billion, driving overall growth. Ad impressions rose 10% from a year earlier, and the average price per ad climbed 14%. The operating loss at Reality Labs, which includes smart glasses, narrowed to $4.129 billion from $4.432 billion a year earlier.
Earnings per share came in at $3.83, below the market consensus of $5.75. Meta explained that the figure reflected a one-time charge of $9.89 billion (about 13.1 trillion won) set aside in August for a settlement with state governments over youth protection, and that excluding that cost, EPS would have been $7.40. Meta also forecast fourth-quarter revenue of $73 billion to $76 billion, above the Wall Street estimate of $73.73 billion. Chief Executive Mark Zuckerberg said the company reached major milestones during the quarter in delivering personal superintelligence for everyone, including the launch of its first frontier models, Muse and Muse Wonder, and added that its investments are bearing fruit, that the core business is solid and that momentum is building across the board.
Free Cash Flow Turns Negative, and With Funding Options Exhausted, Meta Issues Non-Voting Class C Shares
Meta's current results were not bad on their own, but the market focused more on the financial position behind its AI investments. Market participants have been reacting sensitively to AI-related debt since the 14th of this month, when corporate bonds issued by CoreWeave and other neocloud providers came under default concerns. Neoclouds are operators that provide graphics processing unit-based cloud services specialized in AI and high-performance computing.
Meta said capital expenditure on infrastructure expansion rose to $34.91 billion (about 46.3 trillion won) as spending increased on data center construction and securing AI chips. Third-quarter free cash flow turned to a net outflow of $2.12 billion. In addition, non-cancellable AI-related contractual commitments totaled $825 billion, far exceeding the $700 billion reported in July.
With its financial headroom running thin, Meta raised its capital expenditure outlook for this year to a range of $135 billion to $145 billion from $130 billion to $145 billion. The company had initially guided annual capital spending of $115 billion to $135 billion at the start of the year, making this the third upward revision already. Daily active people came to 3.64 billion, up 3% from a year earlier but slightly short of the Wall Street estimate of 3.65 billion.
Meta's board also approved the creation of non-voting Class C common shares as a way to raise large-scale AI infrastructure funding while protecting Zuckerberg's control. The move served as a reminder of Meta's funding shortfall and led directly to declines in other technology stocks. The Class C shares take effect on Jan. 19 next year. Holders of Meta's Class A and Class B shares will receive one Class C share for each share held.
Separately from earnings, news that Meta had been ordered to pay an additional $25 billion (about 33.2 trillion won) in a youth protection lawsuit also weighed on sentiment. On the 21st, Judge Francis Mathew of the district court in Santa Fe, New Mexico, ordered Meta to pay that amount to the state government, ruling that the company had deceived users regarding policies on personal data protection and content management in violation of the state's consumer protection law. The sum is five times the $5 billion fine the U.S. Federal Trade Commission imposed on Facebook over the same matter in 2019. The case stemmed from an incident during the 2016 U.S. presidential election in which a political consulting firm harvested the personal data of 87 million Facebook users without authorization and used it for targeted political advertising. In August, 48 U.S. state governments reached an $18 billion settlement with Meta that released the company from legal liability, but New Mexico and Florida rejected it and pursued separate legal action. Meta said it would appeal, arguing the penalty should be no more than $3.4 billion.
Tesla's Spending Plan Falls Short of Wall Street Estimates Amid SpaceX Merger Push, Raising Concerns for Samsung Electronics and SK hynix
On the 22nd, concerns over Tesla's funding capacity also soured investor sentiment. Like Meta, Tesla reported third-quarter results after the close on the 21st, but its capital expenditure plan came in below Wall Street estimates. With Chief Executive Elon Musk having formalized the push for a merger with SpaceX, Tesla is seen as the AI funding source for the combined entity.
Tesla said third-quarter revenue fell 0.2% from a year earlier to $28.05 billion (about 37.2 trillion won), slightly above the $27.9 billion median estimate of analysts surveyed by LSEG. EPS came in at 48 cents, above the market estimate of 43 cents. By segment, automotive revenue fell 3% from a year earlier to $20.56 billion. Energy generation and storage revenue declined 16% over the same period to $2.88 billion.
Tesla also said it plans to deploy unsupervised full self-driving to customer vehicles as early as the second quarter of next year and to begin equipment trial runs in the first half of next year at Terafab, the massive chip plant it is building in Austin, Texas. The plan calls for producing test chips in May and June and starting commercial production in the third quarter of 2028.
What drew the most investor attention was spending on AI and robotics. Tesla reported third-quarter capital expenditure of $4.732 billion, more than double the $2.248 billion a year earlier. As a result, third-quarter free cash flow fell 62% from a year earlier to $1.531 billion. Tesla also sharply cut its annual capital expenditure outlook to $20 billion from $25 billion. Its third-quarter capital spending of $4.732 billion was also far below the Wall Street estimate of $7.5 billion.
The reduction in Tesla's capital spending plan halved expectations for synergies from the merger with SpaceX. At SpaceX's third-quarter earnings presentation on the 20th, Musk said there are considerable advantages to combining the two companies now that they are close to reaching superintelligence, and asserted that a merger is a good idea. Bloomberg reported on the 21st that SpaceX and Tesla are moving to announce a merger by the first half of next year in order to complete the deal within President Donald Trump's term. The two companies' combined market capitalization stood at $3.4528 trillion as of the 21st, the fifth-largest in the world after Nvidia, Apple, Alphabet and Microsoft. The key question is whether Tesla shareholders will approve, given that Musk holds just 20% of the voting rights.
MarketWatch said in a column on the 21st that 70% to 75% of 40,000 mergers and acquisitions carried out between 1980 and 2022 ended in failure. Britain's Financial Times reported on the 6th that SpaceX is seeking to raise $40 billion (about 55 trillion won) to buy Nvidia AI chips, through $10 billion in loans and $30 billion in corporate bond issuance.
Concerns over rising AI capital expenditure at Big Tech firms are likely to persist for some time alongside high interest rates. Until profitability is clearly demonstrated to some degree, share prices at major South Korean chipmakers including SK hynix and Samsung Electronics (005930) will find it hard to escape the effects of bubble talk.
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