Nasdaq Falls 2.9%; S&P Cuts Meta Outlook to Negative as AI Costs Mount

Key Facts

On October 30, S&P Global Ratings revised its credit outlook on Meta Platforms to negative from stable, while affirming its long-term rating at AA-. The decision came as U.S. technology stocks fell in Friday’s session: the Nasdaq Composite declined 2.9% and the S&P 500 fell 1.8%, its worst daily performance since June. The outlook change reflects the agency’s concern about the company’s ability to fund its expansion in artificial intelligence while maintaining cash flow. Reuters reported that S&P cited “significant uncertainty around Meta’s capital spending and free operating cash flow.” The rating remained unchanged, while the signal on its direction became more cautious.

The credit issue centers on the scale of investment required to build AI capabilities and whether cash revenue will keep pace with that spending. S&P said Meta’s leverage could exceed 1.0 times by 2027, the threshold the agency associates with an AA- issuer rating. The company also plans to sell $97.5 billion in shares to fund its AI expansion, according to Reuters. The plan adds a direct funding channel to investors’ debate over the cost of expansion and its effect on the capital structure. Meta shares fell to $614.99 at the October 30 close, according to EL7 daily data.

Meta disputed the agency’s assessment of its ability to generate returns from AI. A company spokesperson told Reuters: “We respectfully disagree with S&P’s assertion regarding Meta’s ability to generate commercial returns from AI,” adding that product and business opportunities support its strong credit profile. That position contrasts with broader market concerns over the expected returns from massive technology investments. An AP report said investors are asking whether hundreds of billions of dollars will produce enough profit and productivity to justify the cost. Rising interest rates are also weighing on data center expansion, raising the cost of financing the infrastructure needed for these investments.

The sell-off spread to chipmakers, with the PHLX Semiconductor Index falling more than 7% on October 30 after touching its lowest level since May, according to Reuters. Intel shares plunged 28.6% after its fourth-quarter profit forecast fell short of analysts’ expectations, marking its worst decline since 1974, according to AP. In the previous session, Alphabet shares fell more than 12% in their worst day on record after the company said it had used more cash during the summer than in the spring and linked that to AI investments. These moves heighten the market’s sensitivity to whether current spending is turning into cash flows and tangible returns. Portfolio manager Joe Tigai said the AI trade is moving “from hopes and dreams to: show us the results.”

The decline was not limited to U.S. stocks: the MSCI World index fell 1.51% on October 30, according to Reuters. In the bond market, the U.S. 10-year Treasury yield fell 5.8 basis points to 4.931%, while the two-year yield declined 6.64 basis points to 4.59%. The AP report put the 10-year yield at 4.93%, compared with 4.98% late Thursday. The figures show yields falling alongside stocks, while capital spending pressures and returns on AI investments remained central to market moves. In the credit market, the price of five-year credit default swaps on Meta debt hit a record 114.79 basis points on October 22, amid concerns related to AI spending.

Meta shares had already fallen more than 7% on October 22 after the company raised its annual AI spending forecast and announced a plan to issue new shares to help fund it, according to Reuters. In the bond market, spreads for AI issuers remained near 115 basis points in September, compared with 78 basis points for the investment-grade market overall. The report attributed the wider spread to abundant supply and the need to finance data centers and chips. These indicators place S&P’s outlook revision in the broader debate over funding technology expansion, rather than a decision to downgrade the existing rating. Meta’s long-term rating remains at AA-, while the negative outlook leaves room to monitor the path of spending and cash flow in the coming period.