What did S&P change for Meta?
On 30 October 2026, S&P Global Ratings changed its outlook on Meta Platforms to negative from stable. The agency affirmed Meta's AA- credit rating at the same time. The distinction matters: Meta has not been downgraded, but S&P now sees more risk in the company's finances.
The rating agency pointed to Meta's spending on artificial intelligence and the cash that the buildout has consumed. Meta reported negative free cash flow of $2.12 billion for the third quarter of 2026. Capital expenditure, including principal payments on finance leases, reached $34.91 billion in the same quarter.
A negative outlook is a warning rather than a penalty. It tells investors that S&P sees a greater chance of a downgrade over time. Meta's AA- grade remains investment grade. The company still held $82.45 billion in cash, cash equivalents and marketable securities at the end of September.
S&P's scale runs from AAA to D. AA- is the agency's fourth-highest grade, and BBB- is the lowest investment-grade rating. Meta therefore sits several notches above the line that separates investment grade from junk.
The action puts a credit-market label on a problem that Meta's earnings report had already made visible. The company expects to spend $135 billion to $145 billion on capital projects in 2026. Much of that money is going to AI data centers and superclusters.
S&P's concern is not that Meta lacks revenue. It is that the revenue linked to AI may arrive more slowly than the costs. Meta's advertising business is still growing quickly, which gives it room to fund the buildout. But the gap between spending and cash generation is now wide enough for a ratings agency to flag.
Why did S&P cut Meta's outlook?
CNBC reported that S&P cited 'uncertainty' about Meta's elevated capital expenditure and its negative free cash flow. The agency also questioned 'Meta's ability to monetize its AI investments' relative to peers.
S&P said it is 'unclear when these revenue streams will generate material contributions that exceed their rising costs.' The agency put that uncertainty over the next few years.
Meta's third-quarter results show both sides of the bet. Revenue rose 26% to $64.60 billion, from $51.24 billion a year earlier. Total costs and expenses rose 68% to $51.61 billion, and the operating margin fell to 20% from 40%.
The cost figure includes a $9.89 billion charge. It is tied to Meta's August 2026 agreement with 52 state attorneys general over teen mental health and social media. That agreement provides for payments of up to about $18.59 billion.
Excluding the charge, operating income would have been $22.88 billion instead of $12.99 billion. Net income was $9.86 billion, or $3.83 per diluted share. Cash flow from operations was $32.79 billion, but capital spending consumed more than that.
Investors still marked the stock down. CNBC reported that Meta shares fell 7% after the results, despite the revenue beat. The stock ended October down 15%, its worst month in four years.
S&P also said it expects Meta's capital expenditure growth to start 'flattening out beginning in 2028.' The agency added that it is 'less certain that it will curtail its spending as previously anticipated.' In other words, the current spending curve may last longer than the market assumed.
Meta pushed back on the rating agency's reasoning. A spokesperson said the company respectfully disagrees with S&P's assertion about its AI monetization capabilities. The spokesperson also pointed to 'significant product and business opportunities ahead of us.'
How much is Meta spending on AI?
Meta now expects 2026 capital expenditure of $135 billion to $145 billion. That range is narrower than its previous outlook of $130 billion to $145 billion, but the floor has moved up.
The quarterly pace is already high. Meta spent $34.91 billion on capital projects in the third quarter alone. Meta includes principal payments on finance leases in that figure, so the number captures more than outright purchases. It owns data centers in 23 US states and is building four superclusters with more than one gigawatt of capacity each. Meta says it is on track to nearly double its total infrastructure capacity in 2026 compared with 2025.
Meta's costs are rising alongside the construction. Meta guided fourth-quarter revenue to $73 billion to $76 billion. It raised its 2026 total expense outlook to $175 billion to $179 billion, including the legal charge. It expects Reality Labs losses of $18 billion to $19 billion.
S&P expects free operating cash flow to stay negative in 2026 and 2027. Reuters reported that the agency projects a $71 billion free operating cash flow deficit for 2027.
Meta's defenders point to the cash that the core business still produces. Meta generated $97 billion of operating cash flow in the first three quarters of 2026. It held about $82 billion in cash and marketable securities at the end of September. The advertising business also grew ad impressions by 10% and average price per ad by 14% year over year.
Those numbers explain why Meta can still borrow and raise equity on favorable terms. They do not erase the gap that S&P is measuring.
Why does Meta say the spending is worth it?
Meta's case rests on products that are already live, not only on future models. The company says more than 10 million people used its Muse app in the US and Canada. That figure covers the early weeks after launch. Shopping is the leading use case, with more than 25% of weekly Muse users engaging in it.
Meta also points to business tools. It says more than 2 million businesses use its Business Agent each week. Users hold more than 30 million conversations with those agents weekly. The company estimates that at least 500 million self-identified small businesses use its family of apps.
Those products need inference capacity, which is why Meta frames data centers as revenue infrastructure rather than overhead. Meta says it owns data centers in 23 US states and is building four superclusters above one gigawatt each. It aims to nearly double total infrastructure capacity in 2026.
Meta expects cost efficiency to improve as utilization rises. It cites better use of off-peak capacity, more efficient models and inference optimization. Those are the levers that could narrow the gap between AI costs and AI revenue.
The company also says its AI work is already helping the core business. It credits AI-powered recommendations and more efficient monetization for part of its revenue growth. Advertising revenue pays for the buildout while the new products scale.
The company grew family daily active people by 3% to 3.64 billion. Headcount fell 15% to 66,775, even as capital spending rose. The mix is unusual: fewer employees, far more capital investment.
The bear case is that these businesses remain small relative to the spending. Ten million Muse users is meaningful for a new app. It is modest next to the $135 billion to $145 billion that Meta plans to spend this year. S&P's question is whether revenue from those users and businesses can grow fast enough to justify the infrastructure.
How is Meta funding its AI buildout?
Meta is not relying on operating cash alone. On 26 October 2026, it launched about $35 billion of underwritten equity offerings. The package combined $12.5 billion of depositary shares with $22.5 billion of Class A common stock. The depositary shares represent a new series of mandatory convertible preferred stock.
The common stock offering was later upsized to $25 billion and priced at $625 per share. Meta will not initially receive the proceeds from that sale. The shares are sold through forward sale agreements, and Meta gets the cash when those agreements settle.
The preferred stock carries a 6.50% dividend and a $1,000 liquidation preference. Meta sold 250 million depositary shares at $50 each, with each share representing one-twentieth of a preferred share.
Meta also plans an at-the-market program of about $60 billion once its new Class C common stock begins trading. Meta's plan calls for roughly $95 billion of equity capital in total.
The structure matters for existing shareholders. New common shares dilute their stake. The preferred stock pays a 6.50% coupon and converts into common stock in 2029. The at-the-market program would add more shares over time if Meta uses it.
Meta has not committed to the full program. It said it has no agreement for the at-the-market plan and that the timing, size and terms have not been determined. The company describes equity as one part of a mix that also includes operating cash flow, investment-grade debt and strategic partnerships.
The equity sale also comes with a governance change. Meta's board approved a new Class C common stock that takes effect on 19 January 2027. Existing holders will receive one Class C share for each Class A and Class B share. Meta expects its Class A price to reflect a two-for-one split after the distribution. The Class C shares carry no voting rights.
Meta's offering announcement notes that the company carries Aa3 and AA- credit ratings. Those ratings are why it can raise long-term debt efficiently. The equity sale is meant to diversify that funding mix rather than replace it.
What does the negative outlook mean for Meta?
For bondholders, the change is a signal rather than a default warning. S&P affirmed the AA- rating, and Meta remains a highly rated borrower. The negative outlook tells debt investors that the agency sees pressure on leverage and cash flow.
S&P said its negative view reflects the possibility that Meta's 'leverage could exceed 1.0x' while free operating cash flow stays negative. Leverage compares debt with earnings. A ratio above 1.0x would be unusual for a company with Meta's rating.
The practical effects are gradual. A negative outlook can raise questions during debt sales and may lead some investors to demand higher yields. It can also constrain how aggressively the company adds debt for data centers.
Meta argues that the concerns are overstated. Its spokesperson pointed to new products and business opportunities, and to a 'very strong credit profile.' Meta also says its AI investments are already lifting engagement and advertising performance.
There is a fairness argument on Meta's side. The $9.89 billion legal charge is a one-off cost, not an AI cost. Excluding it, the quarter produced $22.88 billion of operating income. The core advertising machine is still highly profitable.
The rating agency's view is a judgment, and outlooks can be reversed. S&P itself expects capital expenditure growth to flatten from 2028. If Meta's cash flow improves, the agency could return the outlook to stable without a downgrade.
The affected groups extend beyond Meta. Shareholders face dilution from the equity raise. Bondholders face a wider risk premium. Suppliers of chips, power and data-center equipment depend on the spending continuing. Other hyperscalers face similar cash-flow pressure as they build AI capacity.
What should investors watch next?
The first test is Meta's 2027 capital expenditure plan. Meta said it is still developing its budget and capacity plans, so the number is not yet public. The 2027 figure will show whether the current pace is a peak or a plateau.
The second test is free cash flow. Meta needs to show that AI revenue and cost efficiency can narrow the gap. The company says it expects better utilization of off-peak capacity, more efficient models and inference optimization to improve cost efficiency.
Free cash flow and S&P's free operating cash flow are related but not identical measures. Meta calculates free cash flow after capital expenditure and finance lease payments. S&P applies its own definition. Both point to the same pressure: spending is outrunning internally generated cash.
The third test is the equity program. Meta has launched the underwritten offerings, but the $60 billion at-the-market plan depends on the Class C stock trading. Watch whether Meta uses the program and at what price.
A fourth variable is the credit rating. S&P's next review will depend on leverage, cash flow and the pace of spending. A downgrade would not change Meta's ability to fund its plan, but it would change the price of doing so.
Meta's fourth-quarter results, due after the year ends, will be the next formal checkpoint. The company has not announced a date. Meta also faces a number of youth-related trials in the coming months. Those cases could add legal costs while the company is already spending heavily on infrastructure. Until then, the market will trade the outlook rather than the outcome.