OpenAI cuts fundraising target as Wall Street questions AI spending
OpenAI reportedly reduced its latest funding round to $20 billion from $30 billion after a tech selloff, while S&P Global revised its outlook on Meta to negative over cash flow and AI spending concerns.
The seemingly endless flow of capital that has fueled the AI boom in Silicon Valley may be slowing as Wall Street pushes back on massive spending plans. Following a sharp selloff in tech stocks over the past week, OpenAI has reportedly cut the target of its latest fundraising round to $20 billion from $30 billion, according to sources who spoke to the Financial Times. The move also lowered its expected valuation to $1.25 trillion from $1.4 trillion.
The funding effort was overshadowed by rival Anthropic, which is preparing to go public next month. Ahead of its IPO, Anthropic filed an S-1 on Monday showing that its revenue has soared and that its cash flow turned positive in the first half of this year. OpenAI did not immediately respond to a request for comment.
The timing was difficult for the sector. Quarterly earnings reports from major cloud providers this week unsettled investors. Alphabet's cash flow sank deeper into negative territory in the third quarter, and the Google parent joined Meta and Amazon in pursuing large spending plans. On Thursday, Alphabet shares fell about 12 percent, their worst day on record. Not all the news was negative. Microsoft reported strong cloud growth and remained cash flow positive, although it said its capital spending would accelerate, and chipmaker SK Hynix beat earnings forecasts. Still, the overall narrative had turned bearish, particularly after concerns about AI debt sent shares and bonds of so-called neocloud companies tumbling earlier this month.
Capital-raising activity across the industry has been heavy. This past week alone, Elon Musk said SpaceX closed $40 billion in debt financing, Meta announced plans to raise $95 billion in equity, and Microsoft raised $25 billion in a bond sale. Against that backdrop, S&P Global cut its outlook on Meta to negative from stable late Friday, citing negative cash flow and uncertainty about its capital expenditure plans. The agency kept Meta's rating at AA-, but warned that the company's leverage could exceed 1.0x as soon as 2027, the downgrade threshold for its current rating. Leverage was about 0.1x in 2025, and the increase primarily reflects Meta's strategy of leasing data center capacity rather than new debt issuance.
S&P projects Meta's capital expenditures will reach $140 billion this year, top $225 billion in 2027, hit $252 billion in 2028, and then level off. As a result, it expects free operating cash flow to stay negative, at roughly -$22 billion this year, -$71 billion in 2027, and -$39 billion in 2028. Other hyperscalers are also spending heavily and running cash deficits, but S&P said Meta's ability to monetize its AI investments is more limited than that of its peers.
"While we believe the company intends to monetize these investments via improved advertising tools that support faster ad revenue growth, as well as from the development of new revenue streams stemming from its introduction of agentic apps such as Muse, it is unclear when these revenue streams will generate material contributions that exceed their rising costs over the next few years," S&P said. The agency added that Meta's rivals are monetizing their data centers by leasing compute capacity to frontier model labs and enterprise customers.
In a statement to Fortune, a Meta spokesperson said the company disagrees with S&P's assessment. "Meta is already delivering stronger engagement, better recommendations, and greater returns for businesses as a result of AI investments," the spokesperson said. "We believe the technology and infrastructure we're building now will open new revenue streams, create long-term shareholder value, and bring us closer to delivering personal superintelligence to everyone."
The bearish mood also reflects broader pressures. Rising bond yields have pushed borrowing costs sharply higher, and the political backlash against data centers is expected to help Democrats retake Congress, according to the report. The Iran war could also re-escalate after the midterm elections.
Some market observers are not convinced the AI boom is about to bust. Market veteran Ed Yardeni said the AI investment boom faces financial, physical, and political constraints, and that if any worsen, stocks could fall further, especially since AI is now a major driver of corporate earnings and GDP growth. He nevertheless argued that these constraints are healthy. If capital does not flow as easily, he suggested, it could lead to more efficient allocation and reduce the risk of overinvestment. Yardeni expects hyperscalers to keep access to financing thanks to strong balance sheets and to keep spending. "Further AI jitters therefore could set up buying opportunities rather than signal the end of the boom," he said.
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