S&P Global cuts Meta Ratings outlook to negative, raising concerns about AI spending and cash flow

S&P Global Ratings today cited significant uncertainty about capital spending and free cash flow.meta The platform’s credit outlook was cut to “negative” from “stable”.

Reuters reported that big technology companies have always invested heavily in cloud computing, online advertising and e-commerce, but the artificial intelligence (AI) boom has pushed capital spending to staggering levels, leaving investors worried about whether the companies concerned can generate sufficient returns over time.

Meta last week reported third-quarter free cash flow of negative $2.12 billion and forecast full-year capital spending between $135 billion and $145 billion. Meta also plans to raise US$97.5 billion through a public market offering of shares to support investments in AI infrastructure.

S&P Global pointed out that compared to its competitors, Meta’s ability to convert AI investments into revenue is more limited. It is still unclear when Meta’s revenue stream will be able to make a significant contribution to covering rising costs in the next few years.

S&P Global currently estimates that Meta’s free operating cash flow (FOCF) losses will reach $39 billion in 2026 and increase to $71 billion in 2027.

S&P Global reported that Meta’s free operating cash flow from higher expenses could remain negative beyond 2028, and it expects Meta to rely solely on debt to fill the cash gap in 2028.

S&P Global said: “Given the unclear scale of the company’s future capital spending and its ambitious multi-year AI investment plan, we are more uncertain than before whether the company will control spending as previously expected.”

A Meta spokesperson told Reuters: “We respect S&P’s perspective, but disagree with Meta’s assessment of AI’s monetization capabilities.” The spokesperson also said the company believes there are “sufficient future product and business opportunities to support our very strong credit profile.”

Naveen Sarma, head of US media and telecom at S&P Global, said: “If capex remains elevated and continues to grow at a higher rate than we expect, the debt position will weaken further and cash flow will remain negative.”

As of September 30, Meta reported long-term debt of $80.92 billion.

S&P Global also yesterday cut the company’s credit rating outlook to “stable” from “positive” on the grounds that the rapid growth of Broadcom’s AI business has increased its exposure to some larger customers.