AI burning cash sparks credit risk concerns! S&P downgrades Meta (META.US) rating outlook to "negative," questioning its ability to monetize massive investments

According to Zhihui Finance APP, on Friday, S&P Global Ratings revised Meta's (META.US) credit rating outlook from "stable" to "negative", citing the company's continued expansion of artificial intelligence (AI) capital expenditures, which has led to negative free cash flow. There remains uncertainty as to whether massive AI investments will generate sufficient returns in the coming years.

It is noteworthy that S&P did not downgrade Meta’s credit rating itself but maintained its “AA-” rating, only revising the outlook to negative. This means Meta still holds a relatively high credit rating at present, but faces the risk of a future downgrade.

S&P stated that this adjustment mainly reflects the uncertainties imposed by Meta’s high capital expenditures and negative free cash flow. Compared to other tech giants that are also heavily investing in AI data centers, S&P is particularly focused on whether Meta can effectively convert its AI investments into revenue.

Although Meta recently launched the Muse AI assistant app and related foundational models, S&P believes it remains unclear when these new businesses will be able to generate sufficient and considerable revenue to cover the continually rising investment costs over the next several years.

S&P pointed out that although Meta’s capital spending growth rate is expected to moderate starting in 2028, the agency's confidence in the company’s ability to control expenditures as previously anticipated has weakened.

Meta’s previously released Q3 financial results showed the company expects total capital expenditures in 2026 to reach $135 to $145 billion, highlighting the still large scale of its AI infrastructure investments. Meanwhile, Meta’s free cash flow in the third quarter was negative $2.12 billion, the first time it has turned negative. Despite the company’s revenue surpassing market expectations in the quarter, the massive capital spending and worsening cash flow have still prompted investor concern, causing its stock price to fall by 7% after the earnings announcement.

Meta’s share price fell by 15% in October, marking its worst single-month performance in four years.

To support its expanding AI investment, Meta announced on Monday a plan to raise $95 billion through equity financing. Of this, the company intends to first raise $35 billion via an underwritten public offering of shares, followed by an additional $60 billion through a market price offering plan. This financing arrangement further highlights that as the costs of AI infrastructure construction continue to rise, Meta is seeking external capital to support its long-term development strategy.

However, Meta disagreed with S&P’s assessment. A Meta spokesperson stated in a declaration: “We disagree with S&P’s judgment regarding Meta’s ability to commercialize its artificial intelligence business. We believe the company has enormous future product and business opportunities that will continue to support our very strong credit profile.”

The spokesperson further stated that Meta believes the technology and infrastructure currently under construction will create new sources of revenue, deliver long-term value for shareholders, and help realize the company’s vision of making personal superintelligence accessible to everyone.

As large tech companies continue to spend huge sums in AI development, Wall Street is paying increasing attention to how these investments impact enterprise cash flow and financial conditions. For Meta, the ability to improve free cash flow while maintaining high-intensity AI investment, and to demonstrate that new products can generate sufficient commercial returns, will be crucial factors affecting its future credit rating and market confidence.