Meta stock closed Friday, October 30, at $614.99, down 1.53%, before S&P Global Ratings announced that it had revised the company’s credit outlook from stable to negative while affirming its AA- rating. The decision places fresh scrutiny on Meta Platforms’ artificial intelligence spending and whether the company can generate enough cash from those investments to justify the scale of its expansion.
S&P announced the revision after the US market closed, meaning Friday’s share-price decline was not a reaction to the rating action. Meta shares nevertheless finished the week approximately 4.3% lower, extending a difficult period for technology stocks as investors questioned the returns on AI infrastructure spending.
The distinction in S&P’s assessment is significant: Meta remains a highly rated borrower, but the agency is increasingly concerned about how long its capital expenditure will remain elevated and whether future AI revenue will compensate for the resulting cash requirements.
What S&P Changed and What It Kept
S&P revised Meta’s outlook to negative on October 30, citing significant uncertainty surrounding capital expenditure and free operating cash flow. The agency affirmed its AA- issuer credit rating, leaving Meta firmly within investment-grade territory.
A negative outlook is not an immediate downgrade. It indicates that S&P sees an increased possibility of lowering the rating, typically within the next two years, if the company’s credit metrics deteriorate or fail to recover as expected.
The agency argued that Meta’s opportunities to monetize AI infrastructure are more limited than those of certain technology peers. Companies operating cloud platforms can sell computing capacity directly to external customers, while Meta relies more heavily on improvements to advertising, engagement and new AI-powered products to generate returns.
That difference makes the timing of future cash generation more uncertain. S&P questioned when Meta’s emerging AI revenue streams would contribute enough to offset their rising costs.
The Free-Cash-Flow Math Behind It
Meta’s third-quarter financial results explain why credit analysts are concerned. The company generated $32.79 billion in operating cash flow, but spent $33.94 billion on property and equipment and made another $964 million in finance lease principal payments.
After those deductions, quarterly free cash flow was negative $2.12 billion, compared with positive $10.63 billion in the same period last year. Capital expenditures, including finance lease principal payments, reached $34.91 billion.
Meta also narrowed its 2026 capital expenditure guidance to $135 billion-$145 billion, raising the lower end by $5 billion. Management expects aggressive investment to continue in 2027 as it expands computing infrastructure for AI development and its existing businesses.
The spending is occurring despite substantial revenue growth. Third-quarter revenue increased 26% to $64.60 billion, while operating income declined 37% to $12.99 billion. The operating-income decline included a $9.89 billion litigation charge, which must be distinguished from the capital expenditure driving the cash-flow concerns.
Meta ended September with $82.45 billion in cash, equivalents and marketable securities, providing significant liquidity even as infrastructure spending absorbs more internally generated cash.
The Downgrade Trigger: Leverage Above 1.0x and Negative Cash Flow Beyond 2028
S&P warned that its adjusted leverage measure could exceed 1.0 times as early as 2027, reaching the threshold associated with a potential downgrade from AA-. The agency also sees a risk that Meta’s free operating cash flow will remain negative beyond 2028.
A downgrade could follow if adjusted leverage stays above 1.0 times on a sustained basis and free operating cash flow remains negative beyond 2028. These conditions describe a potential future rating action, not a downgrade already taken.
The agency also expects Meta to rely on debt to finance its projected cash shortfall in 2028. That introduces a different consideration for investors: the company must eventually balance AI investment, shareholder returns and its capacity to maintain strong credit metrics.
The pressure has already influenced Meta’s financing decisions. FinanceFeeds previously examined Meta stock and the company’s $35 billion capital-raising plans, including the proposed participation of major semiconductor companies. Raising external capital can support infrastructure expansion, but equity financing can dilute existing shareholders while additional borrowing can increase leverage.
Meta’s Response
Meta rejected S&P’s assessment of its ability to monetize AI investments. Company spokesperson Kamran Mumtaz said Meta respectfully disagreed with the agency’s characterization and pointed to significant future product and business opportunities supporting its credit profile.
Management has previously said AI-powered improvements are already increasing advertising revenue through better recommendations, stronger engagement and more effective monetization. Meta also expects new AI products to create additional opportunities over time.
The disagreement therefore concerns the scale and timing of future returns, rather than whether Meta currently generates substantial revenue. S&P is questioning how much additional cash the next phase of AI development will produce relative to the resources required.
What It Means for Meta Stock and the AI-Capex Trade
For Meta stock, the negative outlook adds a credit-market perspective to the valuation debate that has dominated technology trading throughout October. Investors have already questioned whether the capital spending commitments of Alphabet, Amazon and other AI infrastructure investors can produce sufficiently attractive returns.
Meta’s immediate challenge is to demonstrate that AI investments can improve revenue and profitability without requiring an indefinitely expanding capital budget. The company’s advertising growth supports management’s argument, but the negative free-cash-flow quarter shows that strong operating performance does not automatically translate into surplus cash.
The next indicators are the trajectory of capital expenditure in 2027, adjusted leverage, free operating cash flow and measurable revenue contributions from new AI products. A recovery in cash generation could weaken the case for a downgrade, while persistent deficits and rising leverage would strengthen it.
S&P has not concluded that Meta’s AI investment strategy will fail. Its decision signals that the company has less room to increase spending without consequences for its credit profile. That is the question investors must now weigh against Meta’s growth ambitions.
