$95 billion bet on AI! Meta (META.US) launches rare equity financing, while Goldman Sachs still maintains "Buy" rating

Zhihu Finance APP noted that as the AI computing power race enters a “cash-burning” deep water zone, Meta (META.US) has chosen to prepare further resources for its AI ambitions with an equity financing plan approaching $95 billion. On October 26, this social media giant with a market capitalization of about $1.7 trillion announced the launch of large-scale equity financing, a scale rarely seen in the US stock market. Goldman Sachs reiterated its “Buy” rating on the stock in its research report, with a 12-month price target of $885, stating that behind this bold bet lies the growth logic of advancing both core business and AI in parallel.

Goldman Sachs pointed out that Meta’s financing will be split into two tranches. The first tranche is an immediate underwritten offering of about $35 billion, of which approximately $22.5 billion consists of Class A common stock sold through forward sale agreements; an additional $12.5 billion worth of A series depositary shares corresponds to newly issued mandatory convertible preferred shares. The second tranche is an at-the-market (ATM) issuance plan of about $60 billion, to be launched after Class C common stock begins trading, which will not happen before the first quarter of 2027, and the final scale, timing, and terms are yet to be determined.

It is worth noting that the AI chip giants NVIDIA (NVDA.US), AMD (AMD.US), and Broadcom (AVGO.US) have each expressed interest in subscribing to a combined maximum of about $5 billion in Class A common stock. This detail is being interpreted by the market as increasingly close capital ties between chip manufacturers and their major downstream customers.

The financing plan also includes a corporate governance arrangement: issuing non-voting Class C shares. This means that founder and CEO Mark Zuckerberg can retain voting control even as the share base is expanded, particularly in scenarios such as long-term investment, paving the way for sustained AI investment.

Supporting this financing is Meta’s impressive third-quarter performance. Goldman Sachs summarized four key points: the core business operational momentum exceeded expectations, the early performance of the AI model Muse was positive, the incremental revenue path from AI is becoming clearer (for small and medium-sized businesses and enterprise customers), and management reiterated its commitment to ramp up AI infrastructure investment. Together, these point to the judgment that Meta is seizing the high ground in AI computing power with a pace of investment beyond expectations.

However, the costs of this bold bet are equally striking. Goldman Sachs estimates that Meta’s total GAAP expenses in fiscal 2027 and 2028 will reach around $221 billion and $254 billion, respectively, with capital expenditures as high as about $230 billion and $250 billion, and cumulative capital expenditures over two years reaching about $480 billion.

As a result, the company’s free cash flow is expected to plunge from about $46 billion in 2025 to approximately $6.369 billion in 2026, turning negative in 2027 to about -$33.452 billion; EBIT margin would decrease from around 31.2% in 2026 to about 29.9% in 2027; gross margin will also drop from about 78.7% in 2026 to around 68% over the following two years.

Even so, Goldman Sachs maintains its positive outlook. The firm believes Meta occupies a unique position at the intersection of AI and spatial computing. Its family of existing applications, new standalone apps, and the hardware, software, and platform potential of Reality Labs together form multiple pillars supporting long-term growth. According to the research report, Meta’s revenue will increase from about $257.185 billion in 2026 to $374.132 billion in 2028, corresponding to growth rates of approximately 28.0%, 22.8%, and 18.4%, respectively; GAAP earnings per share will rise from $28.84 to $37.49.

Of course, risks cannot be ignored. Goldman Sachs cautions that competition for user growth, engagement, and advertising revenue, the squeeze on profit margins from massive long-term investment, regulatory and antitrust scrutiny, and uncertainties in monetizing models like Muse and Reality Labs could all exert pressure on the share price.

Whether this $95 billion wager pays off depends not only on Meta’s ability to turn AI investment into sustainable incremental income but also on the test of time.