What Equity Raising Can Mean for Investors

So far, Meta Platforms NASDAQ: META has failed to fully convince markets that its use of artificial intelligence (AI) will pay off in the long term.

Meta shares are down more than 15% in the last 52 weeks. This is very contrary to the feeling and the return of another important player of the Magnificent Seven: Alphabet NASDAQ: GOOGL. Alphabet's shares have doubled in value over the same period, and the company is showing rapid growth in its cloud segment.

In the midst of its success, Alphabet recently made an important announcement. The company said it will raise $84.75 billion through a share offering as it looks to develop its AI capacity. Even with Alphabet's demonstrated AI capabilities, investors didn't react well to the news.

Recent reports say that Meta could follow in the footsteps of Equity Alphabet's exit. Given this, it is worth examining what an equity raise could mean for the company and investors.

Meta Is Reportedly Considering A Big Equity Raise After Alphabet's Big Announcement

Notably, Alphabet's shares fell 4% on the day it announced its funding move, even as the S&P 500 rose slightly. Alphabet's dividend increase originally planned for $80 billion represents about 1.8% of the share price reduction. That number rises slightly to about 1.9% when considering its increased contribution of $84.75 billion.

Overall, this is a small amount of dilution, but the market reaction was still reasonable. At the end of the day, the promotion means that each of the former shareholders will own a smaller company, all things being equal.

Days later, reports surfaced about a potential equity raise for Meta. Reports say the company is putting together a stock offering worth “tens of billions of dollars” that will go toward financing its AI strategy. While far from a concrete number, this indicates a potentially large fundraising round, as well as shareholder dilution. However, the move is not set in stone, with reports noting that it is “premature” to say that Meta has reached a final decision.

Meta Equity Promotion: More Reductions for Less Money

Still, it's worth considering the extent to which Meta will need to dilute shareholders to raise tens of billions of dollars. The midpoint of Meta's 2026 CapEx guide is $135 billion, or about 73% of Alphabet's midpoint CapEx guide of $185 billion. Given that the potential Meta equity boost will reach CapEx, it's not unreasonable to peg the value of that boost at 73% of the Character boost. Doing so would mean an equity raise of about $62 billion (73% of $84.75 billion). With a market capitalization of nearly $1.45 billion, an equity raise of $62 billion would result in a decline of about 4.3%.

Therefore, in order to collect $62 billion, or about $23 billion less than Alphabet, Meta will have to dilute shareholders twice. This shows how Meta's potential equity boost could be good for shareholders compared to Alphabet. Given this volatility, it's possible that Meta's shares could see a bigger drop than Alphabet's if the promotion happens. When comparing the views of these two stocks, this is something that investors should consider.

This is even more important when you think about the long-term timeline. If hyperscaler equity increases were to increase, Meta's relative disadvantage when it comes to dilution could be compounded over time.

Equity Increases Goodness: A Potential Funding Source for AI products

On the other hand, it's worth thinking about the potential positives of the Meta equity boost. So far, Meta has not released swaths of AI products. Most of its AI computing is focused on expanding its advertising business across Facebook, Instagram, and WhatsApp. The company has clearly succeeded in this. In Q1 2026, Meta's revenue increased 33% year over year, its highest growth rate since 2021.

However, investors still want to see more from Meta when it comes to AI offerings. Notably, it's only been two months since Meta introduced the Muse Spark, its latest AI model. The Muse Spark is much smarter than LLaMa's previous Meta models, and while it's not a “borderline” model, Meta believes the Muse Spark is competitive.

Getting a competitive AI model under its belt is a key requirement for releasing AI products that gain traction. All of this is to say that, since the Muse Spark is still so new, it's fair to assume that Meta has some decent AI products in its lineup.

As Meta pursues such products, raising equity can be a legitimate way to fund the growth of those products. In turn, Meta could mitigate the concerns that have hurt its share price by creating new sources of AI revenue.

Overall, while the dilution of shareholders is far from dire, the profits can be huge in the long run.

Among these, another thing to consider is the Meta rating. The stock currently trades at a forward price-to-earnings (P/E) ratio of approximately 19x. This is very close to its three-year low and well below its three-year average of around 23x.

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