Most investors rarely consider how many shares a company has outstanding. You buy stock, and your ownership stake remains unchanged.
That changes when a company issues new shares. The company now has more shares outstanding, meaning each existing share represents a smaller share of ownership.
According to Meta Platforms (META)’s financial report, the average number of daily users of its applications in September was 3.64 billion, while third-quarter revenue grew 26% to $64.6 billion.
Read more: Meta wants users to pay $249 to wear AI on their face
“This quarter we achieved a major milestone in delivering personal superintelligence to everyone,” CEO Mark Zuckerberg said in a press release.
However, there’s been a subtle shift in the price Meta paid to achieve this ambition.
A Bank of America research report seen by TheStreet showed that Meta plans to sell up to about $100 billion in shares, which could reduce its earnings per share by about 6%.
Meta stock sale could cost shareholders about 6%
Meta announced the plan on October 26th. It priced $25 billion of Class A shares at $625 per share, up from $22.5 billion, plus $12.5 billion of 6.5% mandatory convertible preferred stock, according to its pricing announcement.
It also plans to implement a separate plan to sell up to $60 billion in new non-voting Class C shares, starting no later than the first quarter of 2027.
According to Meta’s documentation, here’s how the pieces fit together:
- Class A common stock: $25 billion, $625 per share, sold through forward agreement, to be settled on November 19, 2027
- Top picks for convertibles: $12.5 billion, paying 6.5% and converting into common stock on or about August 15, 2029
- Underwriter options: Two transactions add approximately $5.6 billion
- Class C program: Up to $60 billion, no deal signed yet
Nvidia (NVDA), AMD (AMD) and Broadcom (AVGO) expressed interest in buying up to $5 billion of Class A shares, although “these signs of interest are not binding,” Meta said.
Analyst Justin Post laid out the costs in a report titled “As expectations come true, Meta announces capital increase.”
Assuming it raises about $95 billion per share, close to $640, “we estimate Meta will issue approximately 150 million shares, which would dilute earnings per share by approximately 6%,” Post wrote. That’s about $2 higher than his forecast for 2027 earnings of $34 a share.
By my calculations, 150 million new shares plus about 2.57 billion shares outstanding means about 5.8% more shares to distribute the same profits.
The stock closed at $630.42 on October 27, according to InvestSmart price history. The report showed that this was well below the 52-week high of $779.82.
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Why artificial intelligence construction requires external funding
The reason is simple. Meta’s AI spending now exceeds the cash generated by its advertising.
Meta expects capital expenditures this year to be $135 billion to $145 billion, according to a press release. According to TheStreet, free cash flow fell to negative $2.12 billion in the third quarter from positive $10.63 billion in the same period last year.
The scale of construction is huge. Meta is “building four superclusters, each with more than 1 gigawatt of capacity,” and is on track to “nearly double total infrastructure capacity by 2026,” the company said.
More information about Yuanhe Artificial Intelligence:
- Bank of America again adjusts Meta stock price target
- Zuckerberg says Meta’s AI bet will fail only if all AI fails
- Louis Navellier sends strong message on Nvidia’s recurring trade
Post expects the bill to continue to grow. He estimates capital spending in 2027 at $210 billion and free cash flow at $32 billion, writing that some investors have “capital spending around $240 billion and others even higher.”
According to TheStreet, JPMorgan Chase expects Meta capital expenditures to reach $243 billion in 2027.
With that background in mind, it’s easy to see why Post thinks a raise is coming.
“Potential financing of $95 billion points to higher capital spending in 2027 than Bank of America/Wall Street forecasts,” he wrote.
Bank of America says AI revenue must catch up
The question now is whether the spending pays off.
Post identified three key concerns for investors: higher and more persistent capital expenditures, “pending dilution” from the $60 billion Class C program, and “the risk that investments in AI infrastructure will expand faster than they can be monetized.”
He lists points of evidence that deserve attention. These include Muse AI agents powered by Meta, business agent monetization and enterprise AI [selling AI tools to companies rather than consumers].
According to TheStreet, Muse attracted more than 10 million registered users in the United States and Canada in the first six weeks of its launch. Advertising is still how the bills are paid, though, and Post expects Meta to “drive the ad business to support the stock price.”
However, much will likely depend on whether these new products can be converted into revenue before spending hits the ground running in 2027. A year ago, Meta was generating more than $10 billion in free cash flow per quarter.
I also want to note an embarrassing detail. Nvidia, AMD and Broadcom are selling chips to Meta that the funds will help buy, and they have now expressed interest in buying Meta stock.
What dilution means for your Meta stock
If you hold Meta directly or through an S&P 500 index fund, your share of future profits will shrink slightly as new shares are issued.
This isn’t necessarily a bad thing. Dilution pays off if the new money earns more than it costs, and Post’s math suggests stocks are a slightly cheaper option than borrowing.
Post wrote that raising $100 billion in debt at a 7% interest rate “could dilute 2027 earnings per share by 6.8%,” while a similar equity raise would “only be dilutive by 6.5%.”
For Post, the trade-off still favors owning the stock. He maintained his price target of $845, which is about 32% higher than the $638.06 price in his report.
“Given the huge opportunities ahead for artificial intelligence, we maintain a buy rating,” he wrote.
For more information on Meta and its stock:
- Is Yuan Platform a good long-term investment?
- Does Meta pay dividends? Its Yield and Expenses Explained
- Has Meta ever had a stock split? What makes this “Mag 7” stock unique?
- Meta’s stock buyback: How the company’s AI spending affects shareholder returns