Rumored equity raise is negative for Meta due to high dilution cost at current low valuation and investor concerns over return on capital.

We also have rumored news that Met is weighing a big equity raise to finance AI infrastructure.

When I look at my portfolio, I'm heavily invested in artificial intelligence through four hyperscalers. We have Meta, Google, and Microsoft, all spending hundreds of billions of dollars in capex.

Between those companies, Meta, Microsoft, Amazon, and Google, we have the majority of AI spend, the companies funding this big capex buildout. And you know, there were rumors that Met is going to raise capital.

But as he highlights here, Google, Meta, Microsoft, and Amazon are becoming more capex heavy.

Now, on this note, we have the news that Meta is weighing a big equity raise. This is similar to what we heard with Google. In fact, it looks a little bit like Meta is just copying Google.

They've seen that Google is going to get a lot of money by diluting shareholders by like 1.8%. And Meta is saying maybe we can do the same thing.

Now, I hold both of these companies, Meta and Google. And I believe in the case of Google, this delusion is a good thing. But I do not like it for Meta. And I hope that they don't end up doing this for a couple of reasons.

When we look at Metas, it's right now at a 19. Meta is at a way, way lower valuation, which means that when you dilute shareholders, you're doing it at a much more substantial cost than when Google's doing this.

For example, in order for Google to get $80 billion, they need to dilute around 1.8%. For Meta to get the same $80 billion, they'd have to dilute around 5 to 6%. So, you're talking about a substantial level of dilution.

And even diluting any amount when the stock is this cheap does not seem like a smart move. If Meta traded up to a 30p ratio, I would have no problem with them diluting. I think that it would actually make sense in that case, but at a 19, it just doesn't make sense.

The next thing is that I just believe that Meta investors will react far more poorly to this news than Google. Not only because the dilution would be far more expensive, but because right now investors in Meta are a little bit more concerned about the return on capital than Google.

Google has somewhat proven that they're going to have decent returns on capital, or at least investors believe that. But with Meta, that's still a big question mark. So, I think this could actually hit the stock price in a far more negative way for Meta than it did for Google.

So, even though this is just rumored news, I'm hoping that Meta finds a different way of raising capital than diluting shareholders.