Meta issues new shares to fund AI

If you hold shares in Meta, your voting power will not change, but the company is about to issue a brand new type of stock to its investors. This move is designed to help pay for the massive costs associated with building out its artificial intelligence infrastructure. The new shares do not come with a vote on company decisions, which allows the company to raise money without diluting the control held by current major shareholders.

The announcement came alongside the company's third-quarter earnings report on Wednesday. During the earnings call, Chief Financial Officer Susan Li confirmed that Meta plans to create this new class of non-voting capital stock. She explained that these shares will be distributed to all existing shareholders through a stock dividend. Li stated that the purpose is to create a publicly traded non-voting stock that can be used for capital raising, employee compensation, and acquisitions. This approach preserves the voting power of the existing Class A and B shareholders.

The financial results for the past quarter showed strong performance that exceeded Wall Street expectations. The company generated $64 billion in revenue, marking a 26% increase from the same period a year ago. However, the spending side of the ledger grew even faster. Costs and expenses rose by 68% year-over-year, reflecting the heavy investment in new technologies and operations. This significant rise in spending aligns with the stated goal of using the new stock to fund aggressive growth in the AI sector.

One area that continues to drain resources is Reality Labs. This division handles augmented reality glasses, virtual reality headsets, and related software. While it still operates at a loss, the financial bleeding has slowed compared to previous years. The company expects the division's losses to shrink from their 2025 levels to a range between $18 billion and $19 billion. This improvement suggests that while the metaverse and hardware initiatives remain costly, they are becoming slightly less of a financial burden than they were a year ago.

The push into AI has been the dominant theme for the company over the last year. It has released several new models, including Muse Spark and Muse Glimmer earlier in the year. More recently, it added Muse Wonder and Muse Spark Open, the latter being an open-weight model with publicly available parameters. This allows outside developers to use and build upon the technology. Meta also launched Muse Code, a coding agent designed for software developers, and introduced a new line of avatars for its AI assistant, Meta Muse, at its Connect event this year.

These AI products appear to be gaining significant traction with users. CEO Mark Zuckerberg noted during the earnings call that more than 10 million people in the U.S. and Canada set up Muse personal agents in just a month and a half. He described the growth as strong, noting that the app has been number one in the App Store almost every day. Zuckerberg said the company is now entering a new phase focused on scaling the product, with the long-term goal of serving billions of people.

The creation of the new stock class is framed as a way to maintain the company's founder-led structure. Li said it provides flexibility to invest behind the momentum seen across the business. By issuing non-voting shares, Meta can tap into public markets for funds without altering the balance of voting power among its key stakeholders. This strategy is common among tech firms that wish to raise large amounts of capital while ensuring that founding teams and long-term investors retain control over corporate direction.

Despite the strong revenue and AI adoption, the company acknowledged that legal and regulatory challenges remain. Li mentioned that the company continues to monitor active legal matters that could impact its business. Specifically, she pointed to ongoing scrutiny regarding youth-related issues in several markets. There are several youth-related trials scheduled in the United States in the coming months, which could influence the company's financial results and operational strategies in the near future.

For ordinary investors and employees, this change means a new type of asset will be added to their portfolios or compensation packages. The non-voting nature of the stock simplifies governance for the company while providing a liquid instrument for future fundraising. The strategy underscores Meta's commitment to pouring resources into AI, betting that the revenue generated by these new tools will eventually offset the heavy initial costs.