S&P Global Ratings cut its outlook on Meta's AA- credit rating from stable to negative on Friday, citing the pressure that elevated artificial intelligence spending is putting on the company's balance sheet. The rating itself is unchanged, but a negative outlook signals that a downgrade has become more plausible.
The agency's core argument is about monetization. S&P said Meta's ability to make money from its AI investments is more limited than that of its peers, and that it is unclear when the spending will start producing material revenue that exceeds rising costs. Unlike Amazon, Microsoft and Google, Meta does not run a cloud business that rents computing capacity to outside customers.
“We respectfully disagree with S&P's assertion about Meta's AI monetization capabilities.”— Kamran Mumtaz, Meta spokesperson
The numbers behind the call center on leverage, measured as debt relative to cash earnings. S&P expects Meta's leverage to rise above 1.0x as early as 2027, up from about 0.1x last year. The agency views 1.0x as the level consistent with an AA- rating, so crossing it on that timeline would put the current grade in question.
Key facts
- 01S&P Global Ratings moved the outlook on Meta's AA- rating from stable to negative on Oct. 30; the rating itself is unchanged.
- 02S&P expects Meta's leverage to rise above 1.0x as early as 2027, up from about 0.1x last year.
- 03Meta posted a $2.12 billion free cash flow deficit in Q3; S&P projects deficits of $39 billion in 2026 and $71 billion in 2027.
- 04Meta launched a $35 billion share sale on Oct. 26, with Nvidia pledging $3 billion and AMD $1 billion.
- 05Meta spokesperson Kamran Mumtaz said the company disagrees with S&P's view of its AI monetization capabilities.
Cash flow has already turned. Meta reported a free cash flow deficit of $2.12 billion in the third quarter, compared with positive free cash flow a year earlier. S&P projects free operating cash flow deficits of $39 billion in 2026 and $71 billion in 2027, and warned that the figure could stay negative beyond 2028. Meta has guided to annual capital expenditure of $135 billion to $145 billion.
Meta has been raising outside money to fund the build-out. The company launched a $35 billion share sale on Monday, Oct. 26, pricing shares at $625, a 2.7% discount to the prior Friday close. The common stock portion was raised to $25 billion and was about five times oversubscribed, and the broader plan includes a $12.5 billion sale of mandatory convertible preferred stock and an at-the-market share program.
Two of Meta's chip suppliers are among the buyers. Nvidia pledged $3 billion to the offering and AMD committed $1 billion, about $4 billion combined. AMD said the same week that its first Helios rack-scale systems are installed and in testing at Meta, with broader deployment expected in the near future.
Meta pushed back on the agency's reasoning. Spokesperson Kamran Mumtaz said the company disagrees with S&P's assessment of its AI monetization capabilities and pointed to product and business opportunities that he said support Meta's credit profile.
“We see significant product and business opportunities ahead of us, supporting our very strong credit profile.”— Kamran Mumtaz, Meta spokesperson
The outlook change landed on a rough day for tech stocks. The Nasdaq 100 fell 3.5% on Friday and briefly crossed into technical correction territory, weighed down by disappointing tech earnings, as investors questioned whether Meta and other large tech companies can generate returns from heavy AI spending.
Meta is not the first AI spender to draw a ratings response. S&P has already downgraded Oracle over its data center costs, and Big Tech companies have committed more than $3 trillion to the AI build-out. Meta alone has $825 billion in commitments lined up, according to the reporting on S&P's decision.
For now, Meta keeps its AA- rating. The negative outlook gives S&P room to cut it if leverage climbs past 1.0x on the timeline the agency projects.
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