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

Oct 30 : S&P Global Ratings on Friday revised its outlook on Meta Platforms to "negative" from "stable", citing significant uncertainty around its capital spending and free operating cash flow.

Meta has been pouring money into advanced chips and data centers to compete more aggressively with AI market leaders, eroding its historically strong free cash flow.

The company's ability to monetize its AI investments is more limited than that of its peers, S&P said, adding it was unclear when its revenue streams would generate material contributions exceeding their rising costs over the next few years.

Meta last week forecast annual capital expenditure between $135 billion and $145 billion after reporting a free cash flow deficit of $2.12 billion in the third quarter, compared with positive free cash flow a year earlier.

"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.

The ratings agency said it believes Meta's leverage could rise to above 1.0x as early as 2027, which is S&P Global's threshold for the "AA-" issuer credit rating.

S&P now forecasts Meta will generate free operating cash flow deficits of $39 billion in 2026 and $71 billion in 2027, adding that elevated capital spending could result in its FOCF remaining negative beyond 2028.

The social media company recently said it plans to sell $97.5 billion in stock in an effort to tap public markets as it expands AI infrastructure.

Meta's shares were little changed in extended trading on Friday. They fell more than 4 per cent this week, marking their fifth straight weekly loss.