S&P Cuts Meta’s Credit Outlook to Negative as AI Spending Threatens Cash Flow

S&P Global Ratings has revised its outlook on Meta Platforms to negative from stable, warning that the Facebook and Instagram owner could face mounting cash flow deficits and higher debt as it accelerates investment in artificial intelligence infrastructure.

The ratings agency said on Friday that uncertainty surrounding Meta's capital expenditure plans and its ability to generate sufficient free operating cash flow had increased, raising the risk that the company's financial position could weaken over the next several years.

The decision comes after Meta projected annual capital expenditure of between $135 billion and $145 billion, following a third-quarter free cash flow deficit of $2.12 billion. The company is also planning to raise $97.5 billion through stock sales in public markets to support its AI expansion.

The spending reflects the scale of Meta's ambitions to build computing infrastructure and develop AI products, but S&P said the company faces a more difficult path to monetizing those investments than some of its technology peers.

According to the agency, Meta has yet to demonstrate when new AI-related revenue streams will make a material contribution to earnings sufficient to offset the rising costs of infrastructure and development.

S&P now forecasts that Meta will record free operating cash flow deficits of $39 billion in 2026 and $71 billion in 2027. It warned that elevated spending could keep cash flow negative beyond 2028, with the company potentially relying entirely on debt to finance its cash shortfall that year.

The negative outlook signals that S&P sees increased downside risk to Meta's credit profile. It does not represent an immediate downgrade of the company's issuer credit rating, but indicates that the agency may take further action if spending and leverage develop less favorably than expected.

S&P's revised assessment is based on the uncertainty surrounding Meta's future investment requirements. The company has committed to an ambitious expansion of its AI infrastructure, including data centers and computing capacity, but the financial returns from those investments remain difficult to quantify.

The agency said Meta's capital expenditure could remain higher for longer than previously anticipated, given the lack of clarity around its multi-year AI plans.

"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," S&P said.

Its projections point to a substantial deterioration in cash generation. A $39 billion free operating cash flow deficit in 2026, followed by a $71 billion shortfall in 2027, would require Meta to find additional financing while continuing to meet its infrastructure commitments and other financial obligations.

The prospect of borrowing to cover future cash deficits is particularly important for credit investors because it could increase the company's debt burden before its AI investments generate sufficient returns.

S&P expects Meta's leverage to rise above 1.0 times as early as 2027. That level is significant because it represents the agency's stated threshold for the company's AA- issuer credit rating.

Meta's leverage increased from 0.1 times in 2025, according to S&P, partly because the company has relied on leasing data-center capacity rather than financing all its infrastructure expansion through conventional borrowing.

Leasing can reduce the immediate need to issue debt, but it does not eliminate the financial commitments associated with expanding computing capacity. As infrastructure requirements increase, lease obligations and other fixed costs can place additional pressure on future cash generation.

Meta reported long-term debt of $80.92 billion as of September 30. The company's planned stock sale could provide another source of funding and reduce its reliance on borrowing, but the scale of its projected cash deficits means financing requirements could remain substantial.

Naveen Sarma, US media and telecommunications sector lead at S&P Global Ratings, warned that credit profiles across the sector could weaken if capital expenditure remains elevated and grows faster than expected.

"If capex remains elevated and continues to grow at a faster pace than we expect, credit profiles will continue to weaken and cash flows will be negative," Sarma said.

Meta Disputes S&P's Assessment of Its AI Returns

Meta rejected the agency's assessment that its ability to monetize AI investments is more limited than that of its peers.

"We respectfully disagree with S&P's assertion about Meta's AI monetization capabilities," a company spokesperson told Reuters, adding that Meta sees "significant product and business opportunities ahead of us, supporting our very strong credit profile."

Meta has several potential routes to generating returns, including improving advertising performance through AI-driven recommendations, developing new consumer products and expanding its business services. However, the timing and scale of those returns remain uncertain, especially as the company continues to spend heavily on computing infrastructure.

Unlike cloud providers that sell computing capacity directly to customers, Meta's AI investment model relies more heavily on improving its existing businesses and developing new products. That makes the financial contribution of its infrastructure expansion harder to isolate and assess.

Meta's position also underpins the financing challenge facing technology companies as the AI race moves into a more capital-intensive phase. Companies must secure computing capacity years ahead of demand, while the commercial benefits of those investments may take longer to emerge.

S&P's action on Meta follows other adjustments to credit assessments across the technology sector, where rapid AI expansion is creating new financial and concentration risks.

On Thursday, the agency revised its outlook on Broadcom to stable from positive, citing the chipmaker's growing exposure to a small number of major customers as its AI business expands.

Earlier this year, S&P also downgraded Oracle's credit rating to BBB-, one notch above speculative-grade territory, citing the company's heavily leveraged balance sheet and the financing requirements associated with its cloud infrastructure expansion.

The decisions point to a growing distinction between companies benefiting from AI demand and companies able to finance that growth without weakening their credit profiles.

Meta's strong advertising business and established user base provide an important financial foundation. However, S&P's projections suggest that the scale and duration of its AI investment programme could place that foundation under pressure if monetization takes longer than expected.