Original source：Goldman Sachs ResearchFirst published on Unhidea：Original source date：
Key takeaway
Meta is pairing a large equity financing with an expansion of AI investment. Goldman Sachs is positive on the core business and new revenue opportunities, but expects investment to weigh on cash flow; long-term returns depend on the ability to monetize those opportunities.
What are the two stages of the 95 billion-dollar financing plan?
On 26 October, Meta announced an equity financing plan of approximately 95 billion dollars, including a near-term underwritten offering of approximately 35 billion dollars: approximately 22.5 billion dollars of Class A common stock combined with forward sale agreements, and approximately 12.5 billion dollars of depositary shares representing mandatory convertible preferred stock.
Nvidia, AMD and Broadcom each indicated interest in purchasing, in aggregate, up to approximately 5 billion dollars of Class A common stock in the offering. The three companies expressed their interests separately; they did not make a joint commitment.
The remaining approximately 60 billion dollars is a market offering plan, expected to begin after the previously announced Class C common stock starts trading. The company said the plan is not expected to begin before the first quarter of 2027; definitive agreements, timing, size and terms remain undetermined.
Why has the scale of investment put financing in focus?
After Meta reported third-quarter results, investor discussions focused on the timing, size and form of financing, as well as plans for investment supporting AI in 2027 and beyond.
Goldman Sachs forecasts Meta's capital expenditure at approximately 230 billion dollars in 2027 and 250 billion dollars in 2028, respectively, for a combined approximately 480 billion dollars over the two years. It forecasts total GAAP expenses of approximately 221 billion and 254 billion dollars, respectively, over the same period.
Under Goldman Sachs' model, operating cash flow in 2027 is approximately 189.9 billion dollars, below the approximately 223.4 billion dollars of capital expenditure shown in the table, and free cash flow is approximately negative 33.5 billion dollars. Free cash flow in 2026 is forecast at approximately positive 6.4 billion dollars. The investment expansion therefore comes with significant cash-flow pressure.
What business opportunities does Goldman Sachs see, and what constraints does it face?
Goldman Sachs believes Meta's recent third-quarter results substantially exceeded expectations, its core business has good momentum, and Muse has also shown early results. The company also outlined potential paths to additional AI revenue from small and medium-sized businesses and enterprise customers, among others, and reiterated its plans to expand investment in AI infrastructure.
Goldman Sachs' long-term view is that AI and spatial computing can serve existing applications, new standalone applications, and Reality Labs' hardware, software and platform businesses. However, the growth thesis would be weakened if spending on long-term projects pressures operating margins for longer than expected, or if opportunities such as AI and Muse fail to be monetized.
Meta also plans to issue non-voting Class C shares so that its founder and CEO can retain voting control in a range of scenarios, including multiyear investments.
How does the financing news affect Goldman Sachs' valuation assessment?
Goldman Sachs maintains its Buy rating and 12-month price target of 885 dollars, and leaves its forward earnings forecasts unchanged in this report.
Based on the 634-dollar share price used in the body of the report and excluding cash, Goldman Sachs estimates that Meta trades at approximately 20 times and 17 times its 2027 and 2028 GAAP earnings per share, respectively. These multiples are not adjusted for any additional funds that may be raised.
