Meta Shields Zuckerberg as AI Spending Surges

Meta has agreed to a new compensation arrangement for chief executive Mark Zuckerberg amid a proposed California tax that would impose a one-time 5% levy on residents worth more than $1bn. The proposal could cost Zuckerberg, whose wealth is estimated at more than $200bn, about $10bn. Zuckerberg told Meta’s board he was considering moving his primary residence out of California, a possibility he said could raise questions for the company. Following contentious negotiations, a special committee approved a stock arrangement intended to offset the potential tax cost and make it easier for him to sell shares. The deal is designed to last eight years while he remains a California resident and does not change his control of Meta. It appears to apply even if voters reject the tax measure in November. Meta described the agreement as critically important to retaining Zuckerberg’s leadership during a major transformation in technology and the global economy, particularly the race to develop artificial intelligence. The company has undergone significant changes in recent years, including pandemic-era remote work, mass layoffs, restructuring, a retreat from its metaverse focus, and a renewed push into AI. Its workforce is down 15% from a year earlier, or at least 10,000 employees. Meta plans to spend as much as $145bn on AI this year, part of a broader spending surge among major technology companies. Its investment has contributed to negative cash flow for the first time since it went public 14 years ago, and the company expects to spend still more. Chief financial officer Susan Li said the stock split would also give Meta additional ways to finance future AI work. Investors reacted negatively to the spending outlook and the absence of a clear new AI revenue stream: Meta shares fell more than 7% on Thursday, erasing over $100bn from the company’s market value.

Meta Platforms has reached an agreement with CEO Mark Zuckerberg after he reportedly considered moving his primary residence out of California because of Proposition 40, a proposed one-time 5 per cent tax on the state’s billionaires. Under the deal, Meta will issue Zuckerberg non-voting Class C shares beginning in January 2027. He can sell some of them to cover a potential tax bill while retaining voting control, and has committed to remain a resident of California—or wherever Meta is headquartered—for eight years. Meta said Zuckerberg’s continued leadership is important as the company faces intense competition and plans to raise hundreds of billions of dollars over several years to fund its artificial-intelligence expansion. Prop 40 would need more than 50 per cent support to pass. Supporters say it could raise $100 billion US for health care, food assistance and public education; critics estimate the proceeds could be closer to $40 billion and warn that the tax could drive wealthy residents and investment from California. University of California-Davis law professor Darien Shanske, who helped draft the proposal, said moving would not necessarily avoid the tax for billionaires who were California residents on Jan. 1. The measure has attracted opposition from prominent figures, including Google co-founder Sergey Brin, who has spent more than $100 million US campaigning against it, and outgoing Gov. Gavin Newsom. Supporters include Rep. Ro Khanna and Sen. Bernie Sanders. Other opponents include gubernatorial candidate Xavier Becerra and the California Teachers Association, which favors a different funding approach. Nvidia’s Jensen Huang has expressed willingness to pay the tax, describing it as a privilege and responsibility. Passage remains uncertain. A recent poll found 46 per cent of respondents who had a position supported Prop 40, while 43 per cent opposed it. Analysts note that California ballot initiatives often lose support over time and historically only about one in three citizen initiatives have been approved.

Meta shares fell nearly 7% on Thursday after the company reported negative free cash flow for the third quarter and increased the minimum of its expected full-year capital expenditures. Free cash flow was negative $2.12 billion, while Meta now expects to spend between $135 billion and $145 billion on capital investments, compared with a previous lower estimate of $130 billion. The spending is tied to the company’s expanding artificial intelligence plans. Investor concern was also reflected in the price of Meta’s five-year credit default swaps, which reached an all-time high, indicating heightened concern about the company’s credit risk. Meta also disclosed plans to create a new class of nonvoting Class C common stock. The company said the arrangement is intended to preserve its founder-led structure and give it another way to finance growth. A filing said CEO Mark Zuckerberg could face a significant, multibillion-dollar tax bill if California’s proposed “Wealth Tax” passes, based on the value of his Meta shares. The filing also said the new stock plan helped persuade Zuckerberg to remain in California. Despite concerns about spending and cash flow, Meta’s quarterly revenue increased 26% year over year to $64.60 billion, exceeding analysts’ estimate of $63.37 billion. The company reported earnings per share of $3.83, although the article notes that it was unclear whether this figure was directly comparable to Wall Street’s expected $5.75 per share. The report presents a mixed financial picture: strong revenue growth alongside heavier investment, negative free cash flow, and increased investor concern about credit risk.