S&P Cuts Meta Credit Outlook to Negative From Stable

S&P Global cut Meta Platforms Inc.'s credit outlook to negative from stable, citing heavy artificial intelligence spending that is driving cash outflows higher while the timing of returns on those investments remains unclear.

Reuters reported on October 30 that S&P cited uncertainty around Meta's capital expenditures and funds from operations after capital expenditure, or FOCF, as the reason for the outlook downgrade. It affirmed the company's issuer credit rating at AA-.

Meta said last week that it expects capital expenditures of $135 billion to $145 billion this year. It posted a $2.12 billion deficit in third-quarter free cash flow. The company is also pursuing a $97.5 billion stock sale to help fund its AI infrastructure buildout.

S&P said Meta has less capacity than rivals to monetize its AI investments. It said it is also unclear whether new revenue over the next several years will be enough to offset rising costs. The ratings firm projects Meta's FOCF deficit will widen to $71 billion next year from $39 billion this year.

S&P also said cash flow could remain in deficit beyond 2028 if large-scale spending continues. It estimates Meta will cover its entire 2028 funding shortfall through borrowing. "The scale of future capital expenditure is not clear, and the company's multiyear AI investment plan is very ambitious," S&P said. "We have less confidence that the company will reduce spending as it had expected."

S&P said Meta's leverage ratio could rise above 1x as early as next year. That is the threshold for its current AA- rating. Meta's long-term debt stood at $80.92 billion at the end of September.

A Meta spokesperson said the company disagrees with S&P's assessment of its AI monetization capacity. Meta sees substantial product and business opportunities ahead that support a very strong credit profile, the spokesperson added.

Separately, S&P revised Broadcom's credit outlook the previous day to stable from positive. It cited the chipmaker's growing reliance on a small number of large customers as its AI business expands rapidly. Earlier this year, S&P also cut Oracle's credit rating to BBB-, one notch above junk, as its debt burden increased.