S&P turns negative on Meta as AI spending eats into its cash

S&P lowered the outlook on Meta’s AA- credit rating to negative from stable, citing heavy AI spending. It expects Meta’s leverage to rise above 1.0x as soon as 2027, from about 0.1x last year. Meta says it disagrees.

S&P Global Ratings has cut its outlook on Meta’s AA- credit rating to negative from stable, warning that the company’s AI spending may be slow to pay off, Bloomberg reported. The agency announced the change on Friday.

“Meta’s ability to monetize its AI investments is more limited than that of its peers,” S&P said.

Unlike Amazon, Microsoft and Google, Meta has no cloud business yet that rents out computing power. S&P said it is unclear when the spending will bring in more revenue than it costs. Mark Zuckerberg has admitted Meta bet $200B on AI without knowing it would work.

The agency expects Meta’s leverage, its debt measured against earnings, to rise above 1.0x as soon as next year, from about 0.1x last year. That would breach the limit for its current rating.

Meta posted a free cash outflow of $2.12B in the third quarter, and it has $825B in commitments lined up. Earlier this week, it began a $35B share sale to help pay for the build-out.

“We respectfully disagree with S&P’s assertion about Meta’s AI monetization capabilities,” said Meta spokesperson Kamran Mumtaz.

“We see significant product and business opportunities ahead of us, supporting our very strong credit profile,” he added.

S&P has already downgraded Oracle over its data centre bills, and Big Tech has now committed more than $3T to the build-out. The Nasdaq 100 fell 3.5% this week and briefly entered correction territory after disappointing tech earnings.