The seemingly endless influx of capital that flooded Silicon Valley during the AI boom may soon end as Wall Street pushes back on massive spending plans.
Following a sharp sell-off in tech stocks over the past week, OpenAI has reduced the target of its latest fundraising from $30 billion to $20 billion, sources told Reuters. Financial Times. This also reduced its expected valuation to $1.25 trillion from $1.4 trillion.
The funding round was also overshadowed by Anthropic, according to the report, as OpenAI’s main rival prepares to go public next month. Ahead of its IPO, Anthropic filed an S-1 on Monday that showed its revenue soared and its cash flow turned positive in the first half of this year.
OpenAI did not immediately respond to a request for comment.
The timing couldn’t have been worse. Quarterly earnings reports from hyperscalers this week have spooked investors. Alphabet saw its cash flow slide further into negative territory in the third quarter, with Google’s parent company also joining Meta and Amazon in continuing its massive spending plans. Alphabet fell about 12% on Thursday, its worst day on record.
Certainly, there have been other positive signs, besides Anthropic’s bullish S-1. Microsoft reported strong cloud growth and remained cash flow positive even as it announced its capital spending would accelerate, while AI chipmaker SK Hynix blew out its profit forecast.
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 were massively tapping into the financial markets. Just last week, Elon Musk said SpaceX closed a $40 billion 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 bleed cash was too much for S&P Global, which lowered its outlook on Meta from “negative” to “stable” late Friday, citing negative cash flow and uncertainty around capital spending plans.
The credit rating agency kept Meta at AA- but warned that the social media leader’s leverage could exceed 1.0x as soon as 2027, which is the threshold for downgrading the current rating. This represents an increase from approximately 0.1x in 2025 and primarily reflects its data center capacity leasing strategy rather than its debt issuance.
Meanwhile, S&P projects that Meta’s investments will reach $140 billion this year, surpass $225 billion in 2027, reach $252 billion in 2028, and then level off from there. As a result, it expects operating free cash flow to remain negative: -$22 billion this year, -$71 billion in 2027 and -$39 billion in 2028.
Of course, other hyperscalers spend big and run cash flow deficits, but S&P also said that Meta’s ability to monetize its AI investments is more limited than its peers.
“While we believe the company intends to monetize these investments through enhanced advertising tools that support faster advertising revenue growth, as well as through the development of new revenue streams stemming from the introduction of agent applications such as Muse, it is unclear when these revenue streams will generate material contributions in excess of their growing costs over the next few years,” S&P said.
However, Meta’s competitors monetize their data centers by leasing computing capacity, including to pioneer model labs and enterprise customers, he adds.
In a statement to FortuneA Meta spokesperson said the company disagreed with S&P’s assessment of its AI monetization capabilities, pointing to “significant product and business opportunities” ahead.
“Meta is already delivering stronger engagement, better recommendations and better ROIs for businesses through AI investments,” the spokesperson continued. “We believe the technology and infrastructure we are building now will open new revenue streams, create long-term shareholder value, and bring us closer to delivering personal superintelligence to everyone.”
The bearish environment on Wall Street also comes as rising bond yields have pushed borrowing costs sharply higher, the political backlash against data centers is expected to help Democrats retake Congress and the war in Iran could resume after the midterm elections.
Still, some optimistic voices aren’t convinced the AI boom is about to collapse, and even think some pullback in spending is a good thing.
According to market veteran Ed Yardeni, the AI investment boom faces financial, physical and political constraints. If any of those constraints worsen, stocks could plunge further, especially since AI is now a major driver of corporate profits and GDP growth, he said in a note this week.
“However, we consider these constraints to be healthy for the sustainability of the AI boom! » he added.
For example, if the supply of capital does not flow as easily, this could lead to more efficient allocation, thereby reducing the risk of overinvestment. Yardeni expects hyperscalers to maintain access to financing – thanks to their strong balance sheets – and continue spending.
He says it all depends on the U.S. economy, which he says has performed remarkably well in recent decades. Even the midterm elections are unlikely to derail it, regardless of which party controls Congress.
“Renewed AI nervousness could therefore create buying opportunities rather than signaling the end of the boom,” he said.
Gn bussni
