NEW DELHI — S&P Global Ratings revised its outlook on US-based Meta Platforms to negative from stable in its AA- credit rating, citing mounting pressure on the tech giant's balance sheet from high artificial intelligence-related spending.
The company's rising leverage, a measure of debt relative to earnings, also influenced the decision, the ratings firm said in a statement.
“Meta's ability to monetise its AI investments is more limited than that of its peers,” the ratings agency said, adding that uncertainty over how long Meta's capital expenditure would remain elevated and free operating cash flow would stay negative prompted the downgrade decision.
S&P felt doubtful as to when capital expenditures will start producing material revenue that exceeds the rising costs.
A negative outlook indicates the potential for a downgrade over the next two years but does not mean S P is currently considering an immediate rating cut. Meta's AA- rating remains the fourth-highest investment-grade rating, and a one-notch downgrade would still leave the company firmly within investment-grade territory.
The ratings agency forecasted that Meta's capex will reach $140 billion this year and accelerate to over $225 billion in 2027. The tech giant's leverage could climb above 1.0 times in 2027, up from about 0.1 times last year, the statement said.
Investors are also watching when Meta and other industry players will generate tangible returns from the massive investments they've made into the AI buildout. The Nasdaq 100 fell 3.5 per cent, briefly crossing technical support level on Friday, weighed down by disappointing tech earnings.
Meta disclosed earlier in October that it has committed over $800 billion in future spending, with almost half tied to leases that are yet to begin, largely for data centers and energy infrastructure.
Chief Executive Officer (CEO) Mark Zuckerberg and other leaders have outlined ways through which the company can generate revenue from Muse models and personal AI agents it released in recent months.
The revenue model comprises subscriptions, transaction fees, and potentially even by incorporating advertising, which already generates the vast majority of the company's revenue via apps like Instagram, Facebook and WhatsApp.