$95 billion bet on AI! Meta (META.US) launches rare equity financing, Goldman Sachs Group, Inc. still says "Buy"

Note that as the AI computing power race enters the "cash-burning" deep water zone, Meta (META.US) has chosen a nearly $95 billion equity financing plan to stockpile more ammunition for its AI ambitions. On October 26, this social media giant with a market capitalization of about $1.7 trillion announced the launch of large-scale equity financing, the scale of which is truly rare in the U.S. stock market. Goldman Sachs Group, Inc. reiterated its "Buy" rating on the stock in a research report, with a 12-month target price of $885, believing that behind this high-stakes bet is a growth logic of advancing on both fronts: core business and AI. Goldman Sachs Group, Inc. pointed out that Meta's financing is divided into two parts. The first is an immediate underwritten offering of about $35 billion, of which about $22.5 billion is Class A common stock arranged through forward sale agreements; another about $12.5 billion is Series A depositary shares, corresponding to newly issued mandatory convertible preferred stock. The second is an at-the-market (ATM) offering program of about $60 billion, which will be launched after Class C common stock begins trading, no earlier than the first quarter of 2027, and the final size, timing and terms have not yet been finalized. It is worth noting that the three AI chip giants NVIDIA Corporation (NVDA.US), AMD (AMD.US), and Broadcom Inc. (AVGO.US) have each indicated their intention to subscribe to a total of up to about $5 billion of Class A common stock. This detail is interpreted by the market as increasingly close capital ties between chipmakers and their downstream major customers. The financing plan also includes a corporate governance arrangement: the issuance of non-voting Class C shares. This means that founder and CEO Zuckerberg can retain voting control while expanding the share capital, including in situations such as multi-year investments, paving the way for long-term AI investment. Supporting this financing is Meta's impressive third-quarter report card. Goldman Sachs Group, Inc. summarized four key highlights: core business operating momentum exceeding expectations, positive early performance of the AI model Muse, an increasingly clear path to incremental AI revenue (small and medium-sized enterprises and enterprise customers), and management's reaffirmation of its determination to expand AI infrastructure investment. These four points jointly point to one judgment: Meta is seizing the AI computing power high ground at a pace of investment exceeding expectations. But the cost of this high-stakes bet is equally striking. Goldman Sachs Group, Inc. estimates that Meta's total GAAP expenses for fiscal 2027 and fiscal 2028 will reach about $221 billion and $254 billion, respectively, while capital expenditures will be as high as about $230 billion and $250 billion, with cumulative capital expenditures of about $480 billion over the two years. Affected by this, the company's free cash flow is expected to plunge from about $46 billion in 2025 to about $6.369 billion in 2026, and turn negative to about $33.452 billion in 2027; the EBIT margin will fall from about 31.2% in 2026 to about 29.9% in 2027; the gross margin will also fall from about 78.7% in 2026 to about 68% in the following two years. Even so, Goldman Sachs Group, Inc. still maintains a positive view. The bank believes that Meta occupies a unique position at the intersection of AI and spatial computing, and that its existing family of apps, new standalone apps, and the hardware, software and platform potential of Reality Labs constitute multiple long-term growth pillars. The research report estimates that Meta's revenue from 2026 to 2028 will increase from about $257.185 billion to $374.132 billion, corresponding to growth rates of about 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 Group, Inc. cautioned that competition in user growth, engagement and advertising revenue, the pressure on margins from huge investment in long-term projects, regulatory and antitrust scrutiny, and uncertainty over the monetization of businesses such as Muse and Reality Labs may all put pressure on the stock price. Whether this $95 billion high-stakes bet can pay off depends both on whether Meta can convert AI investment into sustainable incremental revenue and also requires time to test.