Rating Outlook Cut to Negative
S&P Global Ratings announced on October 31 that it had lowered the rating outlook for Meta Platforms from stable to negative, mainly due to significant uncertainty over capital expenditures and free cash flow. Reuters reported that large technology companies have long invested heavily in cloud computing, online advertising and e-commerce, while the artificial intelligence boom has pushed capital spending to staggering levels, with investors worried about whether companies can generate sufficient returns in time. S&P Global believes that, compared with its peers, Meta's ability to convert AI investment into revenue is more constrained, and it remains unclear when its revenue sources will make a material contribution to offsetting continuously rising costs in the coming years.
Free Cash Flow Turns Negative as Deficit Widens
Meta reported third-quarter free cash flow of negative US$2.12 billion last week, and expects full-year capital expenditures of US$135 billion to US$145 billion. Meta also plans to raise US$97.5 billion through public stock offerings to fund AI infrastructure investment. As of September 30, Meta reported long-term debt of US$80.92 billion. S&P Global currently estimates that Meta's free operating cash flow deficit will reach US$39 billion in 2026 and widen further to US$71 billion in 2027, with heavy spending likely keeping its free operating cash flow negative after 2028, and expects Meta to rely entirely on debt to fill its 2028 cash shortfall.
Meta Responds, Disagrees With Assessment
S&P Global said that given the unclear scale of the company's future capital spending, coupled with its ambitious multi-year AI investment plan, it is more uncertain than before whether the company will control spending as previously expected. S&P Global U.S. media and telecom head Sharma noted that if capital spending stays elevated and continues to grow faster than expected, its credit profile will weaken further and cash flow will remain negative. In response to the downgrade, a Meta spokesperson told Reuters that it respects S&P's view but disagrees with its assessment of Meta's AI monetization capability, and believes there are vast product and business opportunities ahead sufficient to support a very strong credit profile. In addition, S&P Global recently lowered Broadcom's rating outlook from positive to stable, citing rapid growth in its AI business that increased its exposure to a small number of large customers.