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AI Funding Fears Weigh on Wall Street as Meta Cash Flow Turns Negative

AI funding fears hit Wall Street as Meta's cash flow turned negative; CNBC's portfolio cut AI exposure.

AI News Feed · 2026-10-25 02:12

The sell-off spread to more defensive areas of the market on Friday, sending the Dow Jones Industrial Average down more than 1% as oil prices surged on fears of renewed U.S. strikes against Iran. The Nasdaq posted only a slight loss as investors returned to beaten-down chip stocks and bought cyber stocks, while the S&P 500 was modestly lower Friday. For the week, the Dow rose 0.4%, the S&P 500 fell 0.5% and the Nasdaq slipped 0.7%, according to CNBC.

AI funding fears deepened as investors weighed strong demand against concerns about how companies will finance a massive infrastructure buildout. AI stocks rallied early in the week, especially after SpaceX's surging revenue numbers were reported Tuesday evening. Thursday was far worse. Meta's strong earnings from Wednesday evening were overshadowed by its disclosure that long-term plans could require hundreds of billions of dollars in additional financing, CNBC reported. CoreWeave, which has become a focal point for concerns about debt-fueled AI spending, fell 10% on Thursday and more than 10% for the week after ending the prior week down more than 25%. Nvidia CEO Jensen Huang acknowledged the funding challenge on Thursday, saying "the demand of the capital is much greater than the availability of the capital." Nvidia fell about 1.5% last week. CNBC reported that the issue was not AI demand but whether companies could secure enough financing to meet it as borrowing became more expensive.

The portfolio discussed by CNBC bought 10 shares of GE Vernova during Thursday's sell-off, its first AI-related purchase in five weeks, and upgraded the stock to a buy-equivalent 1 rating on confidence in long-term power demand. It also reduced exposure to the broader AI trade. "The collapse of the data center requires us to circle the wagons," Jim Cramer said. "We can't have too much of the ones we have. We can pick as we did with GEV, but nothing aggressive. And all tag ends should go like Broadcom." He continued: "Circling means we want to be bigger in the better ones." The portfolio exited Broadcom on Friday, locking in an average gain of roughly 128%, and trimmed CrowdStrike, realizing a gain of about 187%, to right-size the position rather than because of concerns about its fundamentals.

CrowdStrike and Palo Alto Networks were the portfolio's two biggest winners last week, both up more than 11% as news of security flaws in the PHP programming language touched off a global security scramble. CrowdStrike CEO George Kurtz told CNBC on Friday that AI-powered attacks observed by CrowdStrike doubled each month from July through September. Jim Cramer has said cyber is needed more than ever in the new world of AI.

Meta delivered a strong third quarter on Wednesday evening, but worries about negative free cash flow and its AI spending needs upstaged strong guidance and a promising roadmap for its viral Muse AI agent. Thursday's 7% drop in Meta shares was more painful because the stock had been rallying in after-hours trading Wednesday night on encouraging signs for Muse. While a muted capital expenditure outlook was initially viewed as a positive on earnings night, a regulatory filing from Meta quickly raised fresh concerns about its funding needs. The company warned that its long-term plans could require raising "hundreds of billions of dollars over a period of several years beginning as early as fall 2026." The filing shed more light on Meta's plan to create a new class of non-voting stock, Class C, in January to help finance investments and acquisitions without diluting CEO Mark Zuckerberg's voting control. The new share class would basically facilitate a two-for-one stock split, with holders getting one Class C share for every Class A they own. The portfolio maintained a hold-equivalent 2 rating on Meta stock and an $800 price target. Meta stock lost more than 9% on the week.

The rotation out of AI stocks benefited several defensive holdings in the portfolio. Kimberly-Clark jumped 4.3% as investors sought safety in consumer staples. Home Depot increased 3.3%, benefiting from the 10-year Treasury yield going below 5%, which could help revive housing activity.