Metas AI Spending Raises Concerns as S&P Adjusts Credit Outlook to Negative
Metas increased AI expenditures lead S&P to downgrade its credit outlook to negative, raising investor concerns.
New Delhi, October 31 (Daily Kiran) : Meta Platforms, the American tech giant, is facing scrutiny over its significant spending on artificial intelligence (AI). On October 31, S&P Global Ratings downgraded Meta’s credit outlook from stable to negative, citing rising pressure on the company’s balance sheet due to these expenditures.
The rating agency highlighted that Meta’s increasing debt is a major factor in this decision. This debt is assessed in relation to earnings, a metric known as leverage. S&P noted that Meta’s ability to generate revenue from its AI investments is more limited compared to its competitors. There is also uncertainty regarding how long Meta’s capital expenditures will remain high and when its free operating cash flow will turn positive. This uncertainty prompted the adjustment to the outlook.
S&P expressed doubts about when the revenue generated from capital expenditures will outpace the rising costs associated with them. A negative outlook indicates a potential downgrade in the next two years, but it does not imply that S&P is considering an immediate rating cut.
Currently, Meta holds an AA- rating, which is the fourth highest investment-grade rating. Even if it were to drop one notch, the company would still remain firmly within the investment-grade category.
The agency projects that Meta’s capital expenditures could reach $140 billion this year, with estimates rising to over $225 billion by 2027. The company’s leverage could exceed 1.0 times by 2027, compared to approximately 0.1 times last year.
Investors are closely monitoring when Meta and other firms will start to see solid returns from their hefty investments in AI. On the same day, the Nasdaq 100 index fell 3.5%, pressured by disappointing earnings from the tech sector.
Earlier in October, Meta announced a commitment to spending over $800 billion in the future, with nearly half of that amount tied to leases that have not yet commenced, primarily for data centers and energy infrastructure.
CEO Mark Zuckerberg and other executives have discussed how the company plans to monetize its recently launched AI models and personal AI agents. Revenue models may include subscriptions, transaction fees, and advertising, which already constitutes a significant portion of the company’s earnings from platforms like Instagram, Facebook, and WhatsApp.
