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

On Friday, S&P Global, Inc. Ratings revised its credit rating outlook on Meta (META.US) from "stable" to "negative," citing the company's continued expansion of artificial intelligence (AI) capital expenditures, which has turned free cash flow negative, while uncertainty remains over whether the massive AI investments can generate sufficient returns in the coming years. Notably, S&P did not downgrade Meta's credit rating this time, maintaining its "AA-" rating unchanged and only revising the outlook to negative. This means Meta still holds a relatively high credit rating but faces the risk of a downgrade in the future. S&P said the adjustment mainly reflects the uncertainty brought by Meta's high capital expenditures and negative free cash flow. Compared with other tech giants also investing heavily in AI data centers, S&P is particularly focused on whether Meta can effectively convert AI investments into revenue. Although Meta recently launched the Muse AI agent application and related foundation models, S&P believes it remains unclear when these new businesses will be able to generate sufficiently substantial revenue to cover the continuously rising investment costs in the coming years. S&P noted that while it expects Meta's capital expenditure growth to flatten starting in 2028, the agency's confidence that the company can control spending as previously expected has weakened. Meta's previously released third-quarter earnings showed that the company expects full-year 2026 capital expenditures to reach US$135 billion to US$145 billion, reflecting the still-enormous scale of its investment in AI infrastructure. Meanwhile, Meta's third-quarter free cash flow was negative US$2.12 billion, the first negative reading. Although the company's quarterly revenue exceeded market expectations, the massive capital expenditures and deteriorating cash flow still triggered investor concerns, causing its share price to fall 7% after the earnings release. Meta's share price fell 15% in October, marking its worst monthly performance in four years. To support its continuously expanding AI investments, Meta announced on Monday plans to raise US$95 billion through equity financing. Of that, the company intends to first raise US$35 billion through an underwritten public offering of shares, followed by US$60 billion through an at-the-market offering program. This financing arrangement further highlights that, as the cost of AI infrastructure construction continues to climb, Meta is seeking external funding to support its long-term development strategy. However, Meta disputed S&P's assessment. A Meta spokesperson said in a statement: "We disagree with S&P's judgment on Meta's ability to commercialize artificial intelligence. We believe the company has enormous product and business opportunities ahead that will continue to support our very strong credit profile." The spokesperson further said Meta believes the technology and infrastructure currently being built will create new revenue streams, deliver long-term value to shareholders, and advance the company's vision of bringing personal superintelligence to everyone. As major technology companies continue to invest enormous sums in developing AI, Wall Street is increasingly focused on the impact of such investments on corporate cash flow and financial condition. For Meta, how to improve free cash flow while maintaining high-intensity AI investment and prove that new products can generate sufficient commercial returns will be key to affecting its future credit rating and market confidence.