S&P cuts Meta credit outlook to negative over AI spending

S&P Global Ratings revised its outlook on Meta Platforms ↘ 1.34% to negative from stable on Friday, October 30, and affirmed the company's AA- rating. The agency cited significant uncertainty around capex and free operating cash flow. The move means S&P now leans toward a possible downgrade, because Meta keeps increasing spending on AI chips and data centers while its cash flow has turned negative for the first time.cnbc.com+1

Spending outpaces payoff

S&P expects Meta's capital spending to reach about $140 billion this year. It forecasts more than $225 billion in 2027 and $252 billion in 2028, up from its earlier estimates of $163 billion and $178 billion, according to the agency's rating action. Meta has not yet disclosed its 2027 spending plans.spglobal.com

"In our view, Meta's ability to monetize its AI investments is more limited than that of its peers," S&P said. The agency added that it is unclear when new revenue will grow larger than rising costs. S&P noted that Meta is counting on better advertising tools and agentic apps such as Muse, while several rivals already earn money by leasing data center capacity to other companies. "Given the lack of clarity around the company's future capex and its very ambitious multi-year AI investment plans, we are less certain that it will curtail its spending as previously anticipated," the agency said.reuters.com+2

Leases push leverage higher

S&P now projects free operating cash flow deficits of $22 billion in 2026, $71 billion in 2027 and $39 billion in 2028. It had previously expected Meta to return to positive cash flow in 2028. Meta's future lease obligations rose to $355.7 billion as of September 30, up from about $279 billion in the second quarter, S&P said. Those leases include large data center projects known as Beignet and Sopaipilla. As a result, S&P expects its measure of Meta's adjusted leverage to rise to 1.1x in 2027 and 1.3x in 2028. That is above the 1.0x level at which it would lower the AA- rating. In 2025, that leverage was about 0.1x.investing.com+1

Pressure after earnings

The outlook change followed Meta's third-quarter results last week. Meta reported a free cash flow deficit of $2.12 billion and guided full-year capex to $135 billion to $145 billion. Revenue rose 26.1%, but the quarter also included a $9.89 billion litigation charge. Shares fell 7% after the report and ended October down 15%, the stock's worst month in four years.cnbc.com+2

To help pay for its expansion, Meta has raised $37.5 billion through common stock and mandatory convertible preferred stock. It plans to sell another $60 billion of Class C shares through an at-the-market program starting in January 2027. Meta shares were little changed in extended trading on Friday after falling for a fifth straight week. Meta did not immediately respond to a request for comment.reuters.com+2