Meta stock jumps 6.6% on Morgan Stanley reassurance over AI spending

Meta's stock recovery reflects a shift in how investors are evaluating the company's massive AI spending. The disappointment last week centered on two concerns: earnings missed consensus, and the $145 billion capital plan signaled that AI infrastructure investment would continue to depress profitability in the near term. Morgan Stanley's endorsement reframes this spending not as reckless, but as part of an industry-wide arms race. The analyst note underscores that all four major cloud operators—Alphabet, Amazon, Microsoft, and Meta—are committing $190 billion to $220 billion annually, making Meta's investment appear proportionate rather than outlier. Crucially, Morgan Stanley highlights that despite the spending, Meta and peers can fund capex through strong operating cash flow, equity and debt financing, leasing strategies, custom chips, and infrastructure efficiencies, easing the free cash flow pressure. This technical argument appears to have shifted sentiment on Monday. However, the body also flags a critical risk: most analysts expect Meta's free cash flow to turn negative by year-end and stay negative through 2027, marking a shift from the $41 billion positive free cash flow the company generated over the past 12 months. Whether investors will tolerate sustained negative free cash flow remains uncertain.