S&P Cuts Meta Outlook to Negative, Forecasts $71 Billion Cash Shortfall in 2027 From AI Spend

Rating Outlook Revised

S&P Global Ratings on Friday revised its outlook on Meta Platforms to "negative" from "stable," citing significant uncertainty around the company's capital spending and free operating cash flow. The agency affirmed Meta's AA- long-term issuer credit rating but warned that a downgrade could follow if leverage rises above 1.0x on a sustained basis and free operating cash flow remains negative beyond 2028 [2].

The decision follows Meta's October 21 quarterly results, in which the company reported a free cash flow deficit of $2.12 billion for the third quarter—a quarterly deficit—against capital expenditures of $34.91 billion [1][8]. Revenue rose 26% year-over-year to $64.6 billion, driven by a 25.9% increase in advertising revenue [2][8].

The Spending Trajectory

S&P now forecasts Meta's capital expenditure will reach $140 billion in 2026, accelerate to over $225 billion in 2027, and hit $252 billion in 2028—substantially above its prior estimates of $163 billion and $178 billion for 2027 and 2028 respectively [2]. Meta's own guidance for 2026 capex is $135 billion to $145 billion, a $5 billion increase at the low end from the previous quarter [1][2].

The agency projects free operating cash flow deficits of $22 billion in 2026 and $71 billion in 2027, with 2027 marking the high-water mark before a projected $39 billion deficit in 2028 [2]. Reuters reported S&P's 2026 deficit forecast as $39 billion, a discrepancy the agency's own release does not explain [1][2]. S&P previously expected Meta to return to positive free operating cash flow in 2028 [2].

"Given the lack of clarity around the company's future capex and its very ambitious multi-year AI investment plans, we are less certain that it will curtail its spending as previously anticipated," S&P said [1].

Monetization Questions

S&P said Meta's ability to monetize its AI investments is more limited than that of its peers. While the company intends to generate returns through improved advertising tools and new revenue streams from agentic apps such as Muse—launched this quarter as Meta's "first frontier model" [8][9]—the agency said it is unclear when these streams will generate material contributions exceeding their rising costs over the next few years [2].

Several peers are already monetizing data-center investments by leasing compute capacity to third parties, including frontier model labs and enterprise customers [2]. Meta's strategy has leaned instead on leasing data-center capacity, including mega-projects dubbed Beignet and Sopaipilla [2].

Leverage and Debt Concerns

Meta's S&P-adjusted leverage stood at 0.1x in 2025 but has risen sharply due to finance-lease obligations rather than traditional debt issuance [1][2]. Future lease obligations increased to $355.7 billion as of September 30, up from approximately $279 billion in the second quarter, largely reflecting the proposed El Paso, Texas data center project (Sopaipilla) [2].

S&P estimates adjusted leverage will reach 1.1x by 2027 and 1.3x by 2028—exceeding the 1.0x threshold for the AA- rating [2]. The agency expects Meta to fund its projected 2028 cash shortfall entirely with debt [1].

Reported long-term debt was $80.92 billion as of September 30 [1][8]. Cash, cash equivalents, and marketable securities totaled $82.45 billion [8][9].

Meta's Response

"We respectfully disagree with S&P's assertion about Meta's AI monetization capabilities," a Meta spokesperson told Reuters, adding that the company sees "significant product and business opportunities ahead of us, supporting our very strong credit profile" [1][6].

In its earnings release, Meta said its AI investments are "already delivering substantial incremental advertising revenue through stronger engagement, better recommendations, and more efficient monetization" and expressed confidence in the long-term potential of newer initiatives, while acknowledging they "will take longer to generate returns than those in our core business" [8][9].

Equity Raise Underway

Meta has moved to bolster its balance sheet. The company recently raised $37.5 billion through a $25 billion Class A common stock offering and a $12.5 billion Series A mandatory convertible preferred stock offering [2][3]. It plans an additional $60 billion at-the-market offering of newly created non-voting Class C shares beginning January 2027 [2][9].

S&P views the capital raise as credit positive but noted its forecasts exclude the planned $60 billion ATM program. Including that amount would reduce projected leverage to 0.7x in 2027 and 1.1x in 2028 [2]. The Class C share structure, approved by a special committee of independent directors, is intended to preserve founder Mark Zuckerberg's voting control while enabling ongoing capital raising [9].

Nvidia agreed to invest $3 billion in Meta's equity offering, and AMD announced a partnership covering 6 gigawatts of GPU capacity—effectively helping fund demand for their own chips [7].

What Comes Next

S&P said it could revise the outlook back to stable if leverage remains below 1.0x and the company generates positive free operating cash flow in 2028—outcomes that would require Meta to shift capex spending, accelerate AI monetization, or raise additional capital without increasing debt [2].

Meta's next quarterly report is expected around January 27. A 2027 capex guide well under S&P's $225 billion forecast would ease pressure; a higher figure would test the AA- rating [7].