S&P Global revises Meta's outlook to 'negative' on AI spending, cash flow worries

A credit outlook expresses the direction a ratings agency thinks a company’s credit quality may take. Moving Meta from “stable” to “negative” does not itself lower the rating. It signals greater uncertainty and a higher risk of a future downgrade. That matters because weaker credit can make borrowing more expensive and reduce financial flexibility.

S&P’s concern centers on Meta’s unusually large AI investment plans. Meta forecast capital expenditures of $135 billion-$145 billion for the year, while reporting a $2.12 billion free cash flow deficit in the third quarter. S&P also doubts that Meta’s AI-related revenue will soon exceed its rising costs.

The agency forecasts free operating cash flow deficits of $39 billion in 2026 and $71 billion in 2027. It expects leverage could exceed 1.0x as early as 2027, S&P’s threshold for Meta’s “AA-” issuer credit rating. Meta disputes S&P’s view of its monetization prospects.

Meta forecast annual capital expenditures of $135 billion-$145 billion. Capital expenditures are large investments in assets and infrastructure, including the capacity needed to build and run AI systems. The figure shows the scale of Meta’s planned AI buildout and why investors are questioning whether returns will arrive quickly enough.

The company also reported a free cash flow deficit of $2.12 billion in the third quarter. A deficit means cash spending exceeded the cash generated after relevant investment outlays during that period. Instead of producing surplus cash, Meta needed to cover a shortfall while continuing to fund expansion.

Those figures form the core of S&P’s concern. Very high spending can keep cash flow negative if AI-related revenue does not grow fast enough. S&P forecasts deficits of $39 billion in 2026 and $71 billion in 2027, with elevated spending potentially keeping free operating cash flow negative beyond 2028.

Free operating cash flow becomes negative when a company’s operating cash generation does not cover its investment spending. S&P believes Meta’s AI plans could create this problem for years because the company may spend heavily before new revenue streams become large enough to offset those costs. That gap matters for borrowing and credit quality.

Meta forecast capital expenditures of $135 billion-$145 billion. It also reported a $2.12 billion free cash flow deficit in the third quarter. S&P says Meta’s ability to monetize AI investments is more limited than some peers. The agency is unclear when Meta’s revenue streams will make material contributions above their rising costs.

S&P forecasts free operating cash flow deficits of $39 billion in 2026 and $71 billion in 2027. It says spending could keep free operating cash flow negative beyond 2028. S&P expects Meta to fund its 2028 cash shortfall entirely with debt if those pressures persist.

Meta’s AI investments will generate enough value only if the related products and business opportunities produce substantial revenue. That revenue must eventually exceed the costs of building and operating the AI infrastructure. This matters because investment spending is already pressuring Meta’s cash flow, leaving less internally generated money to fund future expansion.

Meta plans $135 billion-$145 billion in annual capital expenditures and reported a $2.12 billion free cash flow deficit in the third quarter. S&P says Meta’s ability to monetize AI investments is more limited than that of its peers. The agency is uncertain when Meta’s revenue streams will make material contributions above their rising costs.

Meta disagrees with that assessment. A spokesperson said the company sees significant product and business opportunities ahead, supporting its very strong credit profile. To ease S&P’s concerns, those opportunities would need to produce revenue quickly and consistently enough to cover AI costs and reduce cash deficits.

Persistently negative cash flow would leave Meta with fewer internally generated funds for its investment plans. The company could then rely more heavily on borrowing or other financing. Greater borrowing raises leverage, a key measure of financial risk, and can weaken a company’s credit profile and financial flexibility.

S&P forecasts Meta’s free operating cash flow deficits at $39 billion in 2026 and $71 billion in 2027. The agency expects Meta to fund its 2028 cash shortfall entirely with debt. It also says Meta’s leverage could rise above 1.0x as early as 2027, compared with 0.1x in 2025.

That increase could put pressure on Meta’s “AA-” issuer credit rating, because 1.0x is S&P’s stated threshold. If spending remains elevated and grows faster than expected, S&P says credit profiles will continue weakening and cash flows will remain negative. Meta says it still has a very strong credit profile.

Meta’s planned investment spending is enormous relative to its recent cash flow. The company forecast annual capital expenditures of $135 billion-$145 billion, while reporting a $2.12 billion free cash flow deficit in the third quarter. This means its planned yearly investment is many times larger than the latest quarterly cash shortfall, although the figures cover different periods.

Meta’s long-term debt stood at $80.92 billion on September 30. S&P expects the company to fund its 2028 cash shortfall entirely with debt if elevated spending continues. The agency also says Meta’s leverage rose from 0.1x in 2025, partly because it leases data-center capacity rather than issuing debt.

These figures show why S&P revised the outlook to negative. Meta is planning investment above its recent cash-generation position while its debt is already substantial. If AI revenue does not catch up, borrowing may rise, leverage may pass 1.0x, and financial flexibility may narrow.

Capital expenditures are money spent on long-term assets or infrastructure. Free cash flow is cash remaining after operating needs and investment spending; free operating cash flow focuses on cash generated by operations after those investments. Leverage measures how much debt a company carries relative to a financial measure such as earnings or cash flow. Together, they show spending intensity, cash generation, and debt pressure.

Meta’s figures illustrate the connection. It forecast $135 billion-$145 billion in capital expenditures and reported a $2.12 billion third-quarter free cash flow deficit. S&P also says leverage rose from 0.1x in 2025 and could exceed 1.0x by 2027. Heavy spending can reduce cash, while borrowing to cover deficits can increase leverage.

Lenders and rating agencies study these measures because they indicate repayment capacity and financial flexibility. S&P forecasts Meta’s free operating cash flow deficits at $39 billion in 2026 and $71 billion in 2027. Persistent deficits could lead to more debt and weaker credit quality.