Khaberni - On Thursday, Meta Company increased its debt by $30 billion in one go, an unusual move in the world of giant technology companies but which has become common in recent months to fund the rapid development of artificial intelligence technologies.
The day saw two very different rhythms for the company that owns "Facebook": its shares fell by 11% at the stock market, while it saw great success in bond issuance, where demand exceeded the offered amounts by four times, according to "Bloomberg".
The value of this loan is $30 billion, part of which lasts for forty years, and is scheduled to be used to finance the accelerated growth of artificial intelligence technologies, which cost Meta—as with its competitors—tens of billions annually.
Wall Street does not seem to panic about these amounts, according to analyst Angelo Zino at CFRA, but they might cause "some concern" which explains the decline of Meta’s stocks on Thursday.
Zino believes that the company's CEO, Mark Zuckerberg, "knows no bounds when it comes to spending," yet investors did not hesitate to rush for the company's bonds.
Analyst Byron Anderson from Laffer Tengler Investment says, "Is there some concern about artificial intelligence? Perhaps, but the returns are realized, and the profits are huge."
Meta achieved a net profit of $18.6 billion in the third quarter alone, which is more than the combined profits of General Motors, Walmart, Netflix, and Visa.
Anderson does not view the strong demand for Meta’s bonds in the financial markets as an irrational act or driven by the fear of missing out on the “artificial intelligence train,” adding, "It is simply a high-quality name, just like the information technology company Oracle, which in September made $18 billion."
According to "Bloomberg", Oracle will receive loans worth $38 billion from banks, not through bond issuance.
Many artificial intelligence company loans are secured by tangible assets such as data centers or millions of electronic chips, which are the basic components for developing artificial intelligence technologies, contributing to Wall Street's reassurance.
Zino notes that due to these guarantees, "the risk is very minimal," and there is no fear in the markets of an "artificial intelligence bubble."
A few days ago, Meta announced the establishment of a joint foundation with "Blue Owl Capital", a specialist in asset management, which will raise $27 billion allocated for building new data centers.
Meta and Oracle benefit from the reduction of interest rates by the U.S. Federal Reserve, which lowers financing costs.
This leverage in the financial market is uncommon for technology companies, which are used to financing their needs internally without resorting to borrowing.
Zino says Meta will earn more than $100 billion this year, and could—if it wanted—refrain from distributing dividends to shareholders and invest all the proceeds in artificial intelligence, "but they don’t want to do that," he said.
For startups like "OpenAI", "Anthropic", and "Perplexity", the situation is completely different, as they lose billions of dollars annually and do not achieve any cash flows.
Anderson says, "I've learned in my career that the debt issued by a company that does not make a profit is a risky investment," adding that these companies have only one option, which is to continue issuing shares as they are currently doing, because "borrowing from the market would be too costly for them."
