Meta Platforms has turned to equity-linked funding for its AI spending

Morgan Stanley and Goldman Sachs underwrite 250 million depositary shares of 6.50% preferred, with a further 37.5 million available to the banks within 30 days.

Meta Platforms has turned to equity-linked funding for its AI spending, selling 250 million depositary shares of 6.50% Series A Mandatory Convertible Preferred Stock through Morgan Stanley and Goldman Sachs. The offering closed today. Each depositary share represents a 1/20th interest in a preferred share with a $1,000 liquidation preference, and the underwriters can take up to 37.5 million more within 30 days.

Alongside it sits a forward sale of 40 million Class A shares to Morgan Stanley Capital Services and Goldman Sachs, at an initial price of $622.91875 a share, to settle on or before November 19, 2027. The structure fixes a price for a block of future issuance now and defers the dilution.

The choice of instrument is the story. Meta could have borrowed, but credit default swaps on the company have hit records and risk premiums on corporate bonds have widened on worries about AI spending. Preferred stock paired with a forward sale lets it fund part of a commitment of roughly $825bn without adding to the debt load that has unnerved bondholders. That is a different route from the debt-heavy financing seen in deals such as Volta Infrastructure's AI loan.

It is not free. The forward price sits well below where the stock traded before it slid in premarket trading after the pricing announcement, so existing shareholders are handing over upside on a chunk of future shares. The 6.50% coupon is the price of keeping the debt market at arm's length. A company of Meta's size having to arrange this suggests the build-out is outrunning what plain borrowing will comfortably bear.