Key takeaways
- S&P lowers Meta's credit outlook to negative
- Agency forecasts $71 billion cash flow deficit
- AI spending threatens Meta's prized AA- rating
Meta Platforms is facing fresh scrutiny over its artificial intelligence spending after S&P Global Ratings revised the company's credit outlook from stable to negative, warning that its expanding infrastructure investments could create a $71 billion cash flow deficit in 2027.
According to Reuters' October 30 report, the ratings agency questioned Meta's ability to generate sufficient returns from its AI investments as spending on chips, data centers and computing infrastructure accelerates.
The decision does not constitute an immediate credit-rating downgrade. Meta retains its AA- rating, but S&P now sees a greater risk that rising debt and persistent negative cash flow could eventually weaken its financial position.
Meta Faces $71 Billion Cash Flow Deficit as AI Spending Accelerates
S&P forecasts Meta's free operating cash flow could deteriorate to negative $71 billion in 2027, with elevated infrastructure spending potentially keeping cash generation below zero beyond 2028.
The projection follows Meta's latest earnings, which revealed how dramatically AI investment has changed its financial profile.
According to Meta's official results, third-quarter revenue increased 26% to $64.6 billion, while capital expenditures reached $34.91 billion.
Despite strong advertising growth, free cash flow turned negative by $2.12 billion, compared with positive $10.63 billion a year earlier.
Coinpaper previously examined that cash flow reversal, which contributed to Meta's sharp post-earnings stock decline.
The company now expects annual capital expenditure between $135 billion and $145 billion, reflecting its ambitious effort to develop advanced AI models and expand computing capacity.
S&P's concern is that the investments could continue growing faster than the revenue they generate.
Meta's AA- Credit Rating Faces a New Debt Test
The negative outlook places greater attention on Meta's borrowing and long-term financial commitments.
The company reported approximately $80.92 billion in long-term debt at September's end, while S&P believes its adjusted leverage could exceed 1.0 times as early as 2027.
That threshold is particularly important because sustained leverage above 1.0 times could trigger a downgrade from Meta's current AA- rating if free operating cash flow remains negative.
S&P also expects Meta to rely entirely on debt financing to cover its projected 2028 cash shortfall.
However, the company retains substantial financial resources, including $82.45 billion in cash, cash equivalents and marketable securities at the end of September.
Meta disputed the agency's assessment, arguing that its AI investments create significant opportunities for new products and business growth.
Management has also highlighted improvements in advertising recommendations and monetization efficiency, suggesting that AI is already benefiting its core business.
Nevertheless, Meta's financing concerns reflect a broader industry trend.
Microsoft recently pursued a $25 billion bond offering, while technology companies increasingly seek outside capital to fund infrastructure expansion.
Wall Street's AI Spending Concerns Spread Beyond Meta
Meta is not alone in facing questions about the profitability of its AI investments.
Amazon recently reported that trailing 12-month free cash flow deteriorated from positive $14.8 billion to negative $42.4 billion, despite accelerating cloud revenue growth.
Coinpaper's Amazon analysis highlighted the enormous infrastructure costs behind that reversal.
Alphabet also reported negative quarterly free cash flow after spending more than $51 billion on capital equipment, intensifying concerns about the industry's investment requirements.
Its cash flow decline contributed to another sharp technology-stock selloff.
