S&P Revises Meta Outlook to Negative on AI Spending and Negative Free Cash Flow

S&P Global Ratings has revised Meta's outlook to negative, citing uncertainty about the company's elevated capital expenditures and negative free cash flow. The move followed Meta's recent quarterly earnings report, in which the company guided full-year capital spending to $135 billion to $145 billion and posted negative free cash flow of $2.12 billion. Meta disagreed with the agency's view, saying it sees significant product and business opportunities ahead.

Rating Change and Credit Concerns

S&P changed Meta's outlook from stable to negative while keeping its AA- rating. The agency said the outlook reflects uncertainty around elevated capital expenditures and future cash flow. It also questioned Meta's ability to monetize AI investments compared with peers that are also spending heavily on data center buildouts and going cash flow negative. S&P's highest credit rating is AAA, and anything below BBB falls into the junk bond category.

AI Spending and Monetization

Meta recently debuted its Muse AI agent app and related foundation models. S&P said it is unclear when those revenue streams will generate material contributions that exceed their rising costs over the next few years. A Meta spokesperson said the company respectfully disagrees with S&P's assertion about Meta's AI monetization capabilities and said its strong credit profile is supported by opportunities ahead.

Financial Results and Fundraising

Meta said it expects full-year capital expenditures of $135 billion to $145 billion. It also reported negative free cash flow of $2.12 billion, the first time it went into the red. Investors sent Meta shares down 7% after the report despite a revenue beat, and the stock finished October down 15%, its worst month in four years. On Monday, Meta said it plans to raise $95 billion to help fund AI initiatives, first through $35 billion in underwritten public equity offerings and then an additional $60 billion through an at-the-market program.

Capex Outlook

S&P said it expects Meta's capital expenditure growth to begin flattening out in 2028, but it is less certain that the company will curtail spending as previously anticipated.

Sources: CNBC