S&P Warns Meta's AI Spending Could Burn $71 Billion in Cash Next Year and Put Its AA- Credit Rating at Risk

A credit agency is now saying out loud what stock investors have been muttering: Meta is spending on AI faster than it can show how it will earn the money back. Late on Friday, S&P Global Ratings kept Meta's rating at AA- but cut its outlook to negative from stable.

Meta was not downgraded. A negative outlook is a formal warning that a downgrade becomes possible if the forecast holds, and the forecast is ugly. S&P now sees free operating cash flow of negative $22 billion in 2026 and negative $71 billion in 2027.

The problem with having no cloud

S&P's complaint is about how Meta gets paid back. "Meta's ability to monetize its AI investments is more limited than that of its peers," the agency wrote.

Amazon, Microsoft and Google can rent their computing power to outside customers. Meta is betting instead on better ad tools and agentic apps like Muse. S&P says "it is unclear when these revenue streams will generate material contributions that exceed their rising costs over the next few years."

Meta rejects that reading. "We respectfully disagree with S&P's assertion about Meta's AI monetization capabilities," spokesperson Kamran Mumtaz said. "We see significant product and business opportunities ahead of us, supporting our very strong credit profile."

The numbers moved a long way

S&P expects capex of $140 billion this year. Its 2027 estimate jumped to more than $225 billion from $163 billion, and 2028 went to $252 billion from $178 billion. It expects spending to flatten from 2028, though it is "less certain that it will curtail its spending as previously anticipated."

Free operating cash flow is forecast at negative $39 billion in 2028, a year S&P previously expected to be positive. It expects that shortfall to be funded "entirely with debt."

Leverage is the number that threatens the rating. S&P's adjusted measure goes from about 0.1x in 2025 to 0.3x at the end of 2026, then 1.1x in 2027 and 1.3x in 2028, past the 1.0x threshold for AA-. Much of that rise comes from leasing data-center capacity, because lease commitments count toward leverage, and Meta carries $355.7 billion of future lease obligations.

A business that is still growing

None of this comes from a weak business. Third-quarter revenue rose 26% to $64.6 billion. Net income was $9.86 billion after a $9.9 billion legal charge.

The cash is the trouble. Capex including finance lease principal reached $34.91 billion, leaving free cash flow at negative $2.12 billion. Meta holds $82.45 billion of cash against $80.92 billion of long-term debt, and full-year capex guidance stands at $135 billion to $145 billion.

Meta has already gone to shareholders for help. On October 26 it sold $25 billion of Class A stock at $625, upsized from $22.5 billion, plus $12.5 billion of 6.50% mandatory convertible preferred, for about $37.5 billion in all. A $60 billion at-the-market share program starts in January 2027.

Those buyers are already underwater. The stock fell 1.53% to $614.99 on Friday, below the offering price, and closed out Meta's worst month in four years, down 15.2%.

Not the only one

The rest of the AI trade is under similar strain. Alphabet just had its worst day on record after free cash flow turned negative for a second straight quarter, and OpenAI has reportedly cut its fundraising target to $20 billion from $30 billion. Amazon, which does have a cloud to sell, is lining up a loan of up to about $80 billion secured on the hardware it buys.

Not everyone reads the squeeze as an ending. Ed Yardeni argues that limits on capital, power and politics could make the boom last longer.

S&P's question is narrower. It has given Meta an AA- rating and a warning, and the 2027 numbers will show which one holds.

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