The Pulse
S&P Turns Meta’s Outlook Negative as AI Spending Drains Cash
S&P Global Ratings moved Meta Platforms’ outlook from stable to negative, citing uncertainty about rising AI spending and free operating cash flow. Meta reported a $2.12 billion free-cash-flow deficit in the third quarter, while S&P forecas
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“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.”
Naveen Sarma, US media and telecom sector lead at S&P Global Ratings, said in a Reuters report.
S&P changes Meta’s outlook, not its rating
S&P Global Ratings changed its outlook on Meta Platforms from stable to negative on Friday, October 30, citing uncertainty over the company’s rising capital spending and free operating cash flow. The action signals increased concern about the direction of Meta’s credit profile; S&P affirmed the company’s AA- rating while revising the outlook. The focus is whether Meta’s cash generation can keep pace with its investment in AI infrastructure.
S&P said Meta’s ability to make money from its AI investments is more limited than that of some peers. The agency sees uncertainty over when revenue from those investments will make a material contribution beyond their growing costs. It also said it is less certain Meta will rein in spending as previously expected.
Meta’s $135 billion spending plan
Meta’s latest guidance puts 2026 capital expenditures, including principal payments on finance leases, at $135 billion to $145 billion. The company narrowed the range from its previous forecast of $130 billion to $145 billion, lifting the lower bound by $5 billion. For the third quarter, Meta reported capital expenditures of $34.91 billion.
Meta’s reported free cash flow turned negative in the quarter, reaching a deficit of $2.12 billion. The same quarter a year earlier produced positive free cash flow of $10.63 billion. Meta’s release also reported $32.79 billion in operating cash flow and $82.45 billion in cash, cash equivalents and marketable securities at September 30; the cash-flow shortfall followed spending on property and equipment and lease payments.
The cash-flow forecast extends beyond 2027
S&P forecasts a $71 billion deficit in Meta’s free operating cash flow in 2027. The agency also warned that high capital spending could keep the measure negative beyond 2028, and said it expects Meta to cover its projected 2028 shortfall entirely with debt. Those figures are S&P forecasts, not results Meta has reported.
The agency’s concern is not simply the amount Meta is spending, but the uncertain timing of returns. Meta says its AI investments are already contributing to advertising revenue through stronger engagement, improved recommendations and more efficient monetization. S&P questions when those gains, along with revenue from new products, will exceed the costs of the buildout.
Leasing adds pressure to Meta’s leverage
S&P said Meta’s adjusted leverage could rise above 1.0 times as early as 2027, its stated threshold for the AA- issuer credit rating. It attributed the increase in part to Meta’s strategy of leasing data-center capacity rather than financing all of it through conventional debt. S&P reported that Meta’s leverage measure rose from 0.1 times in 2025.
Meta disputed the agency’s assessment of its ability to monetize AI. A company spokesperson told Reuters that Meta “respectfully disagree[s] with S&P’s assertion about Meta’s AI monetization capabilities” and said the company sees product and business opportunities that support its credit profile. Meta reported $80.92 billion in long-term debt as of September 30.