Meta's $145 billion capex outlook triggers S&P downgrade

Meta shareholders face a downgrade in credit stability after S&P Global Ratings cut the company's outlook to negative on Friday. The agency cited concerns over elevated capital expenditures and the firm's shift into negative free cash flow. This move places Meta in a less favorable standing among major technology issuers as it aggressively funds its artificial intelligence infrastructure.

The revision changes Meta's rating from AA- with a stable outlook to AA- with a negative outlook. S&P noted that while the company holds a high-grade rating, the path forward carries more risk due to cash flow pressures. The agency specifically questioned the timeline for monetizing AI investments compared to peers who are also spending heavily on data centers.

Meta disclosed in its third-quarter earnings report last week that it expects full-year capital expenditures to range between $135 billion and $145 billion. The company reported negative free cash flow of $2.12 billion, marking the first time it has gone in the red in this metric. Investors reacted to the earnings data by sending shares down 7%, a drop that occurred despite the company beating revenue estimates.

The stock finished October down 15%, representing its worst monthly performance in four years. On Monday, Meta announced plans to raise $95 billion to support its AI initiatives. This capital raise will consist of $35 billion through underwritten public equity offerings followed by an additional $60 billion via an at-the-market program.

A Meta spokesperson pushed back against the credit rating change, stating that the company respectfully disagrees with S&P's assertions regarding AI monetization capabilities. The spokesperson argued that strong product and business opportunities ahead support the company's robust credit profile. They emphasized that recent launches, including the Muse AI agent app and related foundation models, position Meta well for future revenue growth.

S&P acknowledged that Meta has introduced new AI products but stated it remains unclear when these revenue streams will generate material contributions that exceed rising costs over the next few years. The agency expects Meta's capital expenditure growth to begin flattening out by 2028. However, S&P expressed less certainty that the company will curtail spending as previously anticipated, maintaining its cautious stance on the firm's cash flow trajectory.