Meta’s bigger budget, Tesla’s smaller one leave Wall Street uneasy

Meta raised its spending forecast and Tesla cut its own, yet shares in both fell on Thursday as investors questioned how the companies would turn their artificial intelligence (AI) ambitions into returns.

Meta shares closed about 7% lower, while Tesla fell 3.1% on October 22.

Josh Gilbert, lead analyst at online brokerage eToro, told Reuters that investors welcome larger capex budgets when they can see returns, but may read smaller ones as a sign of slowing growth.


Meta’s funding challenge

Meta on October 21 raised the lower end of its 2026 capex forecast by $5 billion to $135 billion-145 billion, according to its earnings release.

The Facebook and Instagram parent is investing in AI infrastructure and putting its Muse agent at the centre of plans to build a consumer AI business.

Meta generated $32.79 billion in cash from operations in the third quarter but spent $34.91 billion on capital investments, leaving a $2.12 billion free cash flow deficit, its results showed. That compared with positive free cash flow of $10.63 billion a year earlier and marked its first negative reading since 2012.

The company also announced plans for non-voting Class C shares to help fund growth, acquisitions and employee compensation. The SEC filing says the new share class will take effect on January 2027.

Meta’s five-year credit default swaps, which track the cost of insuring its debt against default, hit a record 114.79 basis points on October 22.

“More spending, negative free cash flow, not enough revenue being generated from the spend (is) concerning investors that this is just sort of a bit of a money pit,” Robert Pavlik, senior portfolio manager at wealth management firm Dakota Wealth, told Reuters.

Tesla’s growth challenge

Tesla, on the other hand, has cut its 2026 capex forecast to about $20 billion from more than $25 billion. The revision followed lower-than-expected spending on AI and robotics in the third quarter, which helped the company report a surprise increase in free cash flow at $1.53 billion against analysts’ expectations of a $4.92 billion cash burn.

That, however, has raised a different set of concerns. Tesla's valuation is closely tied to Elon Musk's plans for autonomous vehicles, the Cybercab robotaxi and Optimus humanoid robots. Investors expecting the company to invest heavily in these businesses are now questioning whether lower spending could slow down those ambitions.

“For a stock priced on Cybercab and Optimus, that (capex forecast cut) explains why the shares went nowhere on a result that beat on most measures,” Gilbert told Reuters.

Tesla and Musk’s SpaceX have also formed special committees to explore a potential merger, Musk said.

The next test

The declines came during a broader sell-off in AI-linked stocks, with Nvidia falling 4.4% and the Nasdaq Composite dropping 2.6%, its steepest one-day decline since June 5.

Microsoft, Alphabet and Amazon report earnings next week, bringing renewed scrutiny of how much the biggest technology companies plan to invest in AI and how they expect to earn a return.