S&P’s negative outlook on Meta underscores the risks of the AI spending boom

Good morning. Following the recent third-quarter tech earnings reports, Wall Street is increasingly questioning the sustainability of the AI spending boom.

Late Friday, S&P Global revised its outlook on Meta to “negative” from “stable,” citing negative cash flow and uncertainty around its capital expenditure plans, Fortune’s Jason Ma reports. The agency affirmed Meta’s AA- credit rating but warned that the company’s leverage could exceed 1.0x as early as 2027.

That’s the threshold for Meta’s current rating. Leverage is up from about 0.1x in 2025, largely because of Meta’s strategy of leasing data-center capacity, rather than relying solely on traditional debt financing.

S&P projects Meta’s capex will reach $140 billion this year, exceed $225 billion in 2027 and hit $252 billion in 2028 before flattening out. It expects free operating cash flow to remain negative: -$22 billion this year, -$71 billion in 2027 and -$39 billion in 2028.

Other hyperscalers are also running cash deficits. According to S&P, Meta is taking a different approach to monetizing its AI investments than its rivals. While competitors can lease compute capacity to frontier model labs and enterprise customers, Meta is betting on improved advertising tools and new revenue streams from agentic apps like Muse. However, S&P said it is “unclear when these revenue streams will generate material contributions that exceed their rising costs.”

Meta disagrees. A........

© Fortune