Standard & Poor's Global Ratings will downgrade the credit rating outlook of Meta Platforms from stable to negative on Friday, while maintaining the rating itself at AA - unchanged.

S&P's reasoning is that the high capital expenditures related to AI have increased leverage, putting pressure on free operating cash flow, and moreover, Meta has a weaker ability to realize the investments made in AI compared to its peers.

S&P said that it is not yet clear when these expenses will generate significant revenue that exceeds the increased costs. The negative outlook reflects the uncertainty regarding how long capital expenditures will remain high and how long free operating cash flows will continue to be negative.

On the same day, U.S. tech stocks weakened, with the Nasdaq closing down by about 3.5%, briefly hitting a technical pullback.

Rising expenses and increased leverage

S&P predicts that Meta will spend approximately $140 billion on capital expenditures this year, and this figure is expected to exceed $225 billion by 2027. As expenditures increase, the company's leverage may rise above 1.0 times as early as next year, compared to around 0.1 times last year.

S&P also pointed out that there are pressures and uncertainties regarding free operating cash flow ( FOCF ). With capital expenditures remaining high, whether cash flow can recover depends on when the investment in AI will be converted into sufficient revenue.

Earlier this month, Meta disclosed future spending commitments of over $800 billion, nearly half of which are related to yet-to-be-launched leases involving data centers and energy infrastructure.

Two-year observation period, and the rating remains high.

According to S&P's rules, a negative outlook implies that the rating may be downgraded in the next two years or so, but S&P is not currently actively considering an immediate downgrade.

AA - It is rated as the fourth-highest investment grade. Even if it is downgraded to one level in the future, Meta will still remain within the high rating range. S&P's statement this time is mainly aimed at the direction of credit trends, rather than a revaluation of the current credit quality.

Meta responds with disagreement to the liquidation judgment

Meta Spokesperson Kamran Mumtaz stated that the company does not agree with Standard & Poor's assessment of its AI liquidity capability. He said, "We see significant product and business opportunities ahead that support our very strong credit position."

At the financial report conference call, Meta Chief Financial Officer Susan Li stated that the company expects to continue to make active investments to support its core business and emerging AI initiatives.