AI boom hits a wall on Wall Street as OpenAI cuts fundraising target while Meta gets a credit warning over its cash flow, spending and monetization
The seemingly endless gusher of capital that's been showered on Silicon Valley during the AI boom may be coming to an end soon as Wall Street pushes back on massive spending plans.
Following a brutal selloff in tech stocks over the past week, OpenAI slashed the target on its latest fundraising round to $20 billion from $30 billion, sources told the Financial Times. That also cut its expected valuation to $1.25 trillion from $1.4 trillion.
The funding round was also upstaged by Anthropic, according to the report, as OpenAI's arch-rival prepares to go public next month. Ahead of its IPO, Anthropic filed an S-1 on Monday that showed revenue has soared and its cash flow turned positive in the first half of this year.
OpenAI didn't immediately respond to a request for comment.
The timing couldn't have been worse. Quarterly earnings reports from hyperscalers this week spooked investors. Alphabet saw its cash flow sink deeper into negative territory in the third quarter, with the Google parent also joining Meta and Amazon in charging ahead with massive spending plans. On Thursday, Alphabet fell about 12%, its worst day on record.
To be sure, there were other positive signs as well, in addition to Anthropic's bullish S-1. Microsoft reported strong cloud growth and stayed cash flow positive, though it said its capital spending will accelerate, while AI chip maker SK Hynix blew away earnings forecasts.
But the narrative had already turned bearish, especially after AI debt fears sent shares and bonds of "neocloud" companies tumbling earlier this month.
At the same time, OpenAI was seeking more capital just as other AI giants tapped financial markets heavily. This past week alone, Elon Musk said SpaceX closed $40 billion in debt financing, Meta announced plans to raise $95 billion in equity, and Microsoft raised $25 billion in a bond sale.
The prospect of hyperscalers continuing to hemorrhage funds was too much for S&P Global, which cut its outlook on Meta to "negative" from "stable" late Friday, citing negative cash flow and uncertainty around capital expenditure plans.
The credit ratings agency maintained Meta at AA- but warned the social media leader's leverage could top 1.0x as soon as 2027, which is the downgrade threshold for the current rating. That's up from about 0.1x in 2025 and primarily reflects its strategy of leasing data center capacity rather than from its debt issuance.
Meanwhile, S&P sees Meta's capex reaching $140 billion this year, topping $225 billion in 2027, hitting $252 billion in 2028, and then flattening out from there. As a result, it expects free operating cash flow to remain negative: -$22 billion this year, -$71 billion in 2027, and -$39 billion in 2028.
