S&P: Meta's leverage could pass the downgrade threshold in 2028 after record AI investments
Credit rating agency S&P Global Ratings on Friday, October 30 revised its outlook on Meta Platforms from "stable" to "negative," citing significant uncertainty around the company's capital expenditures and negative free cash flow. The rating itself is unchanged at AA-, but the change comes with concrete figures for how expensive Meta's AI investment course could become — and with clear criteria for when a downgrade could follow.
What actually changed
It is important to distinguish between the rating and the outlook. Meta's credit rating is still AA-, but the outlook has, as CNBC describes it, changed from "AA- stable" to "AA- negative." A negative outlook is not a downgrade, but a signal that a downgrade could come if certain conditions are met. According to Reuters, S&P justifies the change with significant uncertainty around the capital expenditures and free cash flow.
The timing is no coincidence. The decision came days after Meta's third-quarter report, which showed negative free cash flows for the first time since 2012 — the year the company, then under the name Facebook, went public, according to The Motley Fool. The same week, the company announced an extensive equity offering, and the stock fell 12.76 percent over the past week, according to 24/7 Wall St.
The numbers behind the quarterly report
The quarterly report was in many ways strong: revenue grew 26.1 percent, driven by 25.9 percent growth in advertising revenue, according to Yahoo Finance/Investing.com. But the cost side dominates the picture. Capital expenditures reached $34.9 billion in the quarter — an increase of roughly 80 percent year over year, according to The Motley Fool — and full-year guidance stands at between $135 and $145 billion, according to CNBC.
The quarter ended with a free cash flow deficit of $2.1 billion. In addition came a one-time charge of $9.89 billion tied to a legal settlement with state attorneys general, which pushed per-share results sharply lower.
Meta's financing plan
To fund the AI push, Meta has already raised $37.5 billion, split between $25 billion in Class A common shares and $12.5 billion in mandatory convertible preferred shares (Series A), according to Yahoo Finance/Investing.com. In addition, the company plans an at-the-market program of up to $60 billion in Class C shares, beginning in January 2027.
CNBC frames the plan differently, as a combined target of $95 billion — first $35 billion in underwritten public equity offerings, followed by a further $60 billion via the at-the-market program. The two sources thus give partly different figures and frameworks; this article presents them each on their own terms without attempting to reconcile them.
S&P's projections: capex and cash flow
The most detailed basis for the outlook change is S&P's own projections, as reported by Yahoo Finance/Investing.com:
- Capital expenditures: $140 billion in 2026, over $225 billion in 2027 and $252 billion in 2028. That is a sharp upward revision from the agency's earlier estimates of $163 billion and $178 billion for 2027 and 2028, respectively.
- Free operating cash flow (FOCF): a deficit of $22 billion in 2026 and as much as $71 billion in 2027, which is expected to be the trough point. In 2028, the deficit is expected to narrow to $39 billion.
In other words: S&P expects Meta's cash flow hole to deepen substantially before it begins to close, with the bottom reached in 2027.
Lease obligations and future commitments
Another key figure is the lease obligations. Meta's future lease obligations rose to $355.7 billion as of September 30, 2026, up from around $279 billion in the second quarter, according to Yahoo Finance/Investing.com. This reflects the company's extensive use of data center leases to secure computing power.
S&P estimates that Meta's adjusted leverage will rise to 1.3x when the lease agreements take effect in 2028 — above the 1.0x threshold that, under the current rating, implies downgrade risk.
The monetization question
S&P also points to a structural problem: Meta's ability to earn back its AI investments is more limited than its competitors'. While several peers lease out computing power to third parties and thereby earn direct revenue from AI infrastructure, Meta's planned revenue streams are indirect — improved advertising tools and new revenue from agentic apps such as Muse. According to S&P, the timing of when these can make material contributions remains unclear.
What triggers a downgrade
S&P has laid out two concrete triggers for lowering the rating, according to Yahoo Finance/Investing.com: if adjusted leverage remains above 1.0x over time, and if free operating cash flow remains negative beyond 2028.
Other signals worth watching: Meta has paused share buybacks, according to The Motley Fool, which cites the company's own figures showing that future commitments now stand at $825 billion as of September 30, up from $643 billion as of June 30.
Caveats and open questions
All coverage of S&P's rationale in this story is built on secondary sources — Reuters, CNBC and Yahoo Finance/Investing.com — and not on the agency's own publication. Meta has not commented on the outlook change; CNBC noted that the company did not immediately respond to a request for comment.
The big open questions are when Meta's ad-based AI monetization will actually kick in, how long the market is willing to fund the deficit through equity issuances — the $60 billion January 2027 program will be an early test — and whether lease obligations continue to grow faster than revenue. With the outlook change, S&P has laid out its own benchmarks: leverage above 1.0x and negative cash flows beyond 2028 are the lines that now separate the current rating from a downgrade.