Meta's Nuclear Power Plan Reinforces AI Capex Intensity and Risks

What happened

Meta has unveiled a sweeping plan to back nuclear power projects with partners like Oklo, TerraPower, and Vistra, aiming to secure reliable energy for its AI data centers. This move aligns with its aggressive AI infrastructure buildout, which the DeepValue report identifies as a capital-intensive strategy raising concerns about free cash flow and leverage. The report notes Meta is already in a high-capex phase, with investments potentially straining financial flexibility if AI returns are delayed. Historically, Meta's capital allocation, including persistent Reality Labs losses, has faced scrutiny, and this nuclear initiative adds another layer of execution risk and upfront costs. While intended to support long-term AI scalability and sustainability, it underscores management's willingness to commit further capital amid an already crowded investment narrative.

Implication

Investors should view this as a continuation of Meta's high-capex regime, which could pressure near-term free cash flow and elevate balance-sheet risks if energy projects face delays or cost overruns. The move introduces additional operational and regulatory complexities, such as nuclear safety concerns and permitting hurdles, that might distract from core AI monetization efforts. If successful, it could lower long-term energy costs and enhance AI infrastructure reliability, but the upfront investments may exacerbate existing FCF pressures highlighted in the report. Given the base case scenario where FCF growth is essential for valuation support, this spend requires closer monitoring of capex relative to operating cash flow trends. Ultimately, it reinforces the need for Meta to demonstrate that AI investments will drive sustainable returns without compromising financial discipline, as failure could trigger the bear case of stalled FCF and higher leverage.

Thesis delta

The news does not fundamentally shift the investment thesis but amplifies existing risks around capital intensity and execution. It underscores Meta's commitment to heavy AI infrastructure spending, which could delay the timeline for AI investments to self-fund and increase the probability of free cash flow stagnation. Investors should remain cautious, as this adds complexity to an already challenging capex environment, necessitating enhanced scrutiny of future financial disclosures for signs of overextension.