Meta outlook revised downward by S&P on cash flow and capex concerns

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Meta's outlook has been revised downward by S&P Global Ratings on concerns surrounding cash flow and AI spending.

The credit agency said Friday that the outlook reflects "uncertainty" about Meta's elevated capex and its negative free cash flow.

Meta's credit rating was revised from AA- stable to AA- negative, S&P said. S&Ps highest credit rating is AAA. Anything below BBB falls into the junk bond category.

The agency questioned "Meta's ability to monetize its AI investments" relative to its peers, which are also spending heavily on data center buildouts and going cash flow negative in the process.

Although Meta has recently debuted its Muse AI agent app and related foundation models, S&P said "it is unclear when these revenue streams will generate material contributions that exceed their rising costs over the next few years."

A Meta spokesperson pushed back on the revision.

"We respectfully disagree with S&P's assertion about Meta's AI monetization capabilities," the spokesperson said in a statement. "We see significant product and business opportunities ahead of us, supporting our very strong credit profile."

Meta said in its third-quarter earnings report last week that it expects full-year capex to come in the range of $135 billion to $145 billion. The company also posted negative free cash flow of $2.12 billion, going in the red for the first time.

Investors sent Meta shares down 7% following the report despite a revenue beat. The stock finished October down 15%, its worst month in four years.

The company said on Monday that it plans to raise $95 billion to help fund its AI initiatives, with plans to first raise $35 billion in underwritten public equity offerings, followed by an additional $60 billion through an at-the-market program.

S&P said that while it expects Meta's capex growth to start "flattening out beginning in 2028," the agency is "less certain that it will curtail its spending as previously anticipated."

WATCH : Mike Khouw likes this options strategy for Meta post-earnings .

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