S&P puts Meta on negative outlook as AI spending turns a cash machine into a borrower
S&P Global Ratings has kept Meta at AA- but moved its outlook to negative, forecasting years of negative free cash flow. The agency's doubts about AI returns now carry a price in the credit market.
S&P Global Ratings on Friday, October 30, revised its outlook on Meta Platforms to negative from stable, citing heavy capital spending and uncertainty over when that spending will pay for itself. The agency kept Meta's AA- rating but warned that leverage could rise above 1.0 times as soon as 2027. That is the threshold at which the current rating would come under pressure. In 2025 the figure was about 0.1 times.
An outlook change is not a downgrade, and Meta remains a highly creditworthy company. The significance lies elsewhere. A rating agency has now said in plain terms that one of the largest spenders on artificial intelligence may struggle to earn back its investment on the timetable its balance sheet requires. Coming in the same week that Meta launched a $35bn equity raise, it marks a turning point for a company whose growth was long paid for out of operating cash.
What S&P expects
According to Fortune's account of the report, S&P expects Meta's capital spending to reach about $140bn this year, to exceed $225bn in 2027 and to hit $252bn in 2028 before levelling off. As a result, it forecasts negative free operating cash flow of about $22bn in 2026, $71bn in 2027 and $39bn in 2028. The expected rise in leverage, according to the same account, reflects mainly Meta's strategy of leasing data centre capacity rather than its bond issuance.
The sharper judgement concerned revenue. S&P said Meta's ability to monetise its AI investments is more limited than that of its peers. It acknowledged that Meta intends to earn returns through better advertising tools and new products such as Muse, its AI agent, but said it is unclear when those streams will contribute more than their rising costs. Amazon, Microsoft and Google can rent their data centres to outside customers, including AI laboratories and corporations. Meta has no such cloud business.
Meta rejected the conclusion. A spokesperson, Kamran Mumtaz, said the company disagrees with S&P's view of its AI monetisation capabilities and sees significant product and business opportunities that support its very strong credit profile. In a statement to Fortune, the company added that AI is already delivering stronger engagement, better recommendations and greater returns for businesses.
The quarter that changed the picture
The backdrop was Meta's third-quarter report. Revenue rose 26% to $64.6bn and net income was $9.9bn, but free cash flow was negative by about $2.12bn, the first such quarter in more than a decade. Meta raised the bottom of its 2026 capital spending range to give guidance of $135bn to $145bn. Its shares fell about 7% after the results. TNW reported that Meta has about $825bn of commitments lined up for future infrastructure.
Credit markets had already started to move. Crypto Briefing reported that Meta's five-year credit default swaps reached 114.79 basis points on October 22. The S&P decision also follows the agency's earlier downgrade of Oracle over its data centre obligations, according to TNW, which suggests the agency is applying a consistent lens to companies whose AI spending outruns their cash generation.
How Meta plans to pay
Meta's answer is equity, on a scale rarely seen from a company of its kind. On October 26 it launched about $35bn of concurrent offerings: roughly $22.5bn of Class A common stock sold through forward sale agreements with Morgan Stanley and Goldman Sachs, and about $12.5bn of depositary shares representing mandatory convertible preferred stock, which will convert into common shares around August 15, 2029. Meta also said it plans an at-the-market programme of about $60bn in its new non-voting Class C shares, not expected to begin before the first quarter of 2027. No agreement for that programme has yet been signed.
The prospectus language is revealing. Meta says it will fund its investment through a mix of operating cash flow, investment-grade debt, strategic partnerships and equity, and describes its Aa3 and AA- ratings as allowing it to raise long-term debt efficiently. It generated $97bn of operating cash flow in the first three quarters of 2026 and held about $82bn of cash and securities at the end of September. Those are formidable resources. They are no longer enough to fund the plan on their own.
A crowded week for capital
Meta was not alone. Fortune noted that in the same week Microsoft raised $25bn in a bond sale, and SpaceX said it had closed $40bn of debt financing. OpenAI cut the target for its latest funding round from $30bn to $20bn after a selloff in technology shares, and the Nasdaq 100 fell 3.5% in the week, briefly entering correction territory, according to TNW. Investors are being asked to supply very large sums to the AI build-out just as their appetite is weakening.
For Meta, the combination is awkward. Equity issuance dilutes shareholders. More debt or lease commitments push leverage towards S&P's threshold. Slower spending would undercut the strategy the company has been defending to investors for two years. The negative outlook narrows the room between those options.
Our view
S&P has articulated what many shareholders were already thinking: Meta is spending like a cloud provider without having a cloud provider's revenue. The outlook change does not threaten Meta's access to capital, but it raises the cost and turns the AA- rating from an assumption into something the company must actively defend.
For investors, the measures to watch are leverage as S&P measures it, the pace of Class C issuance once the programme begins, and any evidence that Muse and other new AI products produce revenue that can be counted separately from advertising. For start-ups, the message is mixed. A Meta under financial pressure will look harder for revenue, which may mean more competition in AI agents and consumer tools, but it may also mean tougher terms for suppliers and partners. More broadly, the era in which the largest platforms funded AI purely from profits is over. The capital they now raise will compete directly with the money available for private technology companies.
Sources
- The Daily Guardian (Reuters): S&P Global revises Meta's outlook to negative on AI spending, cash flow worries
- Fortune: AI boom hits a wall on Wall Street as OpenAI cuts fundraising target while Meta gets a credit warning
- TNW: S&P turns negative on Meta as AI spending eats into its cash
- Crypto Briefing: S&P revises Meta's outlook to negative as the AI spending bill keeps growing
- SEC: Meta Platforms free writing prospectus, launch of mandatory convertible preferred and Class A common stock offerings, October 26, 2026
Filed under Big Tech. Written by Invest Times Editorial under our editorial standards. Commentary and analysis for information only, not investment advice.
