S&P Cuts Meta's Outlook to Negative on AI Spending and Cash-Flow Uncertainty

What happened

This is not a downgrade: S&P left Meta's rating unchanged and only moved the outlook from stable to negative, triggered by uncertainty around the future capital spending path and free operating cash flow. Reuters reported that S&P sees Meta as less certain to curtail spending than previously expected, views its ability to monetize AI investments as more limited than its peers, and says it is unclear when revenue will exceed rising costs.

Meta narrowed its 2026 capital spending guidance last week to $135 billion to $145 billion, reported a third-quarter free cash flow deficit of $2.12 billion, and reported long-term debt of $80.92 billion as of September 30. S&P forecasts free operating cash flow deficits of $39 billion in 2026 and $71 billion in 2027, with the 2028 shortfall possibly still negative and funded entirely by debt; elevated spending beyond 2028 could also keep cash flow negative. Reuters reported that Meta plans to sell $97.5 billion in stock to fund its AI buildout.

A Meta spokesperson told Reuters the company disagreed with S&P's view of its AI monetization, saying it sees significant product and business opportunities and a very strong credit profile. S&P also cut Broadcom's outlook to stable from positive, saying rapid AI growth was increasing its exposure to a few large customers; earlier this year, S&P lowered Oracle's rating to BBB-, one notch above junk.

Key facts

1. The change: Outlook cut to negative from stable; the rating itself was unchanged
2. Reason: Significant uncertainty around capital spending and free operating cash flow; spending cuts look less certain than previously expected
3. Cash-flow forecast: Free operating cash flow deficits of $39 billion in 2026 and $71 billion in 2027; elevated spending beyond 2028 could keep cash flow negative
4. Leverage threshold: Leverage could rise above 1.0x as early as 2027, which S&P calls the threshold for its AA- issuer credit rating
5. Spending and debt: 2026 capital spending guidance of $135 billion to $145 billion, a third-quarter free cash flow deficit of $2.12 billion, and long-term debt of $80.92 billion as of September 30
6. Funding plan: Reuters reported that Meta plans to sell $97.5 billion in stock to fund its AI buildout
7. Meta's response: Meta said it disagreed with S&P's view of its AI monetization and described its credit profile as very strong