S&P Global Ratings has revised Meta’s credit outlook downward from AA- stable to AA- negative, citing concerns over the company’s elevated capital expenditure and negative free cash flow. The agency questioned Meta’s ability to monetise its AI investments relative to peers.
The downgrade comes as Meta spends heavily on artificial intelligence and has recently debuted its Muse AI agent app and related foundation models. In its third-quarter earnings report last week, the company forecast full-year capital expenditure between $135 billion and $145 billion and posted negative free cash flow of $2.12 billion, its first time in the red.
Meta shares fell 7 per cent after the earnings report and ended October down 15 per cent, the stock’s worst monthly performance in four years.
Meta plans to raise $95 billion to help fund its AI initiatives, beginning with $35 billion in underwritten public equity offerings followed by $60 billion through an at-the-market programme.
S&P Global Ratings said it expects Meta’s capital expenditure growth to start flattening out beginning in 2028, but is “less certain that it will curtail its spending as previously anticipated.”
A Meta spokesperson pushed back on S&P’s revision, saying in a statement that the company “respectfully disagree[s] with S&P’s assertion about Meta’s AI monetization capabilities” and sees “significant product and business opportunities ahead” supporting its “very strong credit profile.”
S&P’s highest credit rating is AAA; anything below BBB falls into junk bond territory.
Analysis
Why This Matters
- The credit outlook downgrade signals that even one of the world’s largest tech companies is facing scrutiny over the financial returns from its massive AI spending.
- Meta’s first-time negative free cash flow and planned $95 billion fundraising highlight the scale of investment required to compete in AI, raising questions about sustainability.
- The revision could affect investor confidence and borrowing costs for Meta, and may prompt other rating agencies to reassess tech companies’ credit profiles.
Background
S&P Global Ratings is a credit rating agency whose ratings influence borrowing costs and investor perception. Its scale runs from AAA (highest) to D; ratings below BBB are considered speculative or junk. Meta’s downgrade within the AA bracket places it on the weaker end of investment grade. The revision follows Meta’s third-quarter earnings report, which showed the company is spending heavily on AI infrastructure ahead of clear revenue from those investments.
Key Perspectives
S&P Global Ratings: says the downgrade reflects “uncertainty” about Meta’s ability to generate returns from its AI investments, pointing to elevated capital expenditure and negative free cash flow as risks.
Meta: argues that it has strong monetisation capabilities and sees significant opportunities ahead, rejecting S&P’s concerns as underestimating its business prospects.
What to Watch
- The success of Meta’s planned $95 billion capital raising, particularly the $35 billion public equity offering.
- Whether Meta’s free cash flow improves in the coming quarters as AI investments begin to generate revenue.
- How other credit rating agencies and investors respond to Meta’s financial trajectory in the AI race.
Checked
12 claims in this story checked against 1 source: 11 supported.
Show each claim
- Partly supportedThe Meta spokesperson said the company “respectfully disagree[s] with S&P’s assertion about Meta’s AI monetization capabilities.”Tech: ““We respectfully disagree with S&P's assertion about Meta's AI monetization capabilities,” the spokesperson said in a statement.”
- SupportedS&P downgraded Meta’s credit outlook because of concerns about AI spending and cash flow.Tech: “Meta's outlook has been revised downward by S&P Global Ratings on concerns surrounding cash flow and AI spending.”
- SupportedMeta’s rating was revised from AA- stable to AA- negative.Tech: “Meta's credit rating was revised from AA- stable to AA- negative, S&P said.”
- SupportedS&P cited uncertainty about Meta’s elevated capital expenditure and negative free cash flow.Tech: “The credit agency said Friday that the outlook reflects "uncertainty" about Meta's elevated capex and its negative free cash flow.”
- SupportedS&P questioned Meta’s ability to monetise its AI investments relative to peers.Tech: “The agency questioned "Meta's ability to monetize its AI investments" relative to its peers”
- SupportedMeta recently debuted its Muse AI agent app and related foundation models.Tech: “Although Meta has recently debuted its Muse AI agent app and related foundation models”
- SupportedMeta forecast full-year capital expenditure of $135 billion to $145 billion.Tech: “Meta said in its third-quarter earnings report last week that it expects full-year capex to come in the range of $135 billion to $145 billion.”
- SupportedMeta posted negative free cash flow of $2.12 billion, going into the red for the first time.Tech: “The company also posted negative free cash flow of $2.12 billion, going in the red for the first time.”
- SupportedMeta shares fell 7% following the earnings report.Tech: “Investors sent Meta shares down 7% following the report despite a revenue beat.”
- SupportedMeta shares ended October down 15%, their worst monthly performance in four years.Tech: “The stock finished October down 15%, its worst month in four years.”
- SupportedMeta plans to raise $95 billion for AI initiatives, starting with $35 billion in underwritten public equity offerings and followed by $60 billion through an at-the-market programme.Tech: “The company said on Monday that it plans to raise $95 billion to help fund its AI initiatives, with plans to first raise $35 billion in underwritten public equity offerings, followed by an additional $60 billion through an at-the-market program.”
- SupportedS&P expects Meta’s capital expenditure growth to start flattening out beginning in 2028, but is less certain Meta will curtail spending as previously anticipated.Tech: “S&P said that while it expects Meta's capex growth to start "flattening out beginning in 2028," the agency is "less certain that it will curtail its spending as previously anticipated."”
