S&P Global Revises Meta's Outlook to Negative Over AI Capex and Free Cash Flow
BREAKING: S&P Global revises its outlook on Meta, $META, to "negative," citing "significant uncertainty" surrounding CapEx and free operating cash flow (FOCF). "The negative outlook reflects our expectation that the company's leverage could exceed 1.0x and FOCF could remain negative for longer than expected," S&P said. S&P is now raising concerns about AI CapEx.
Context
A major ratings agency is now warning that the AI data center race could weaken the finances of one of the richest tech companies, a sign that credit markets are growing uneasy about AI spending.
S&P Global Ratings assigns credit ratings that affect how cheaply companies can borrow. An outlook change signals the direction a rating could move. Meta reported its first quarterly free cash flow deficit last week as spending on AI data centers soared.
Deep dive
The Kobeissi Letter posted on Friday that S&P Global revised its outlook on Meta to negative, citing significant uncertainty around capex and free operating cash flow.
S&P's release confirms the move. It revised Meta's outlook to negative from stable and affirmed its AA minus rating. S&P says Meta's adjusted leverage could rise above 1.0 times, its downgrade threshold, as early as 2027, up from about 0.1 times in 2025, mainly because Meta is leasing data center capacity rather than issuing debt.
S&P forecasts Meta's capex at about 140 billion dollars this year, rising to more than 225 billion in 2027 and 252 billion in 2028, and says free operating cash flow could stay negative beyond 2028. It projects a deficit of 71 billion dollars in 2027. S&P also says Meta's ability to make money from its AI investments is more limited than its peers, some of which already rent computing capacity to outside customers.
Reuters reported that Meta last week guided 2026 capex to 135 to 145 billion dollars after posting a free cash flow deficit of about 2.1 billion dollars in the third quarter, its first. CNBC noted Meta still holds a high investment grade rating.
What to expect next
Watch whether Meta discloses its 2027 capex plans and whether Moody's or Fitch follow with their own outlook changes. An actual downgrade would raise Meta's borrowing costs for its data center leases. Investors will also watch whether new revenue from AI products arrives fast enough to offset spending, the question S&P says is still unclear. A return to positive free cash flow would ease the pressure on its rating.