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

What happened

S&P Global Ratings changed its outlook on Meta Platforms to "negative" from "stable", citing uncertainty about capital spending and free operating cash flow. Meta forecast annual capital spending of $135 billion to $145 billion after a $2.12 billion free cash flow deficit in the third quarter.

Confirmed

Global impact / market context

A negative outlook signals the ratings agency sees a rising chance of a downgrade, which means a lower credit rating over time. For Meta, heavy spending on chips and data centers is shrinking the cash left after investment, and S&P doubts AI revenue will soon exceed those rising costs.

Analyst inference

Meta is spending aggressively to compete with AI leaders, and S&P says its ability to earn money from AI is more limited than peers. S&P forecasts free operating cash flow deficits of $39 billion in 2026 and $71 billion in 2027, with negative cash flow possibly lasting beyond 2028.

Analyst inference

What to watch

1. S&P said Meta's leverage, meaning borrowed money relative to earnings, could rise above 1.0x as early as 2027, the threshold for its "AA-" issuer credit rating, which indicates credit quality. Confirmed
2. Watch whether Meta narrows or expands its $135 billion to $145 billion annual capital spending plan, since S&P said it is less certain Meta will cut spending as previously expected. Proposed
3. Track Meta's quarterly free cash flow, the cash left after investment, because S&P projects deficits of $39 billion in 2026 and $71 billion in 2027, which could pressure its rating. Analyst inference

Evidence

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