S&P Lowers Meta Outlook to Negative as Capital Spending Reaches $145 Billion
Key Facts
S&P Global Ratings on Friday revised its outlook on Meta Platforms to negative from stable, while affirming its rating at AA-. The agency said the decision reflects "significant uncertainty" around capital spending and free operating cash flow. The change comes as Meta expects to spend between $135 billion and $145 billion during 2026 to support its artificial intelligence efforts and core business. In the third quarter, capital expenditures exceeded cash flow from operating activities, turning free cash flow negative. That puts the spending trajectory and the company's ability to generate cash at the center of the agency's assessment, even as quarterly results showed strong revenue growth.
Cash flow from operating activities was $32.79 billion in the third quarter, compared with capital expenditures of $34.91 billion, including principal payments on finance lease obligations. As a result, the company posted negative free cash flow of $2.12 billion. Meta had reported positive free cash flow of $784 million in the second quarter, when operating cash flow was $31.86 billion and capital spending was $31.08 billion. Free cash flow therefore shifted between the quarters from a modest surplus to a deficit, alongside higher capital spending in the third quarter. These figures highlight the item S&P said was subject to uncertainty, as revenue growth did not change the fact that expenses were weighing on cash remaining after investment.
Meta raised the lower end of its expected capital spending range for 2026 to $135 billion from $130 billion, while the upper end remained at $145 billion. The previous range, announced in its second-quarter guidance, was between $130 billion and $145 billion, after it had been narrowed at the time from $125 billion to $145 billion. The current forecast includes principal payments on finance lease obligations, according to the company's filing with the U.S. Securities and Exchange Commission. Meta said it expects this spending "to support our AI efforts and core business." The company did not provide an estimate for its 2027 spending, leaving the investment trajectory beyond this year unspecified in its published guidance.
Against the pressure on cash flow, Meta's third-quarter revenue rose to $64.60 billion, up 26% from $51.24 billion in the same period a year earlier. Revenue also exceeded analysts' average estimate of $63.34 billion. Average daily active users across Facebook, Messenger, Instagram and WhatsApp reached about 3.64 billion, up 3% year over year. The results show growth in the core business and an expanding user base alongside heavy investment in artificial intelligence. Revenue growth, however, did not prevent a free cash flow deficit during the quarter, as capital expenditures exceeded operating cash flow.
The spending forms part of broader contractual commitments: Meta disclosed $454.52 billion in non-cancelable commitments as of September 30, including about $121.41 billion due in 2027. At the sector level, S&P said in an analysis published in August that free operating cash flow at the six largest hyperscale cloud companies could be negative in 2026 and 2027, with a recovery not expected before 2029. The agency also forecast that the companies' combined capital expenditures would exceed $1.3 trillion by 2027. These estimates place Meta's spending in the context of a broader wave of investment in AI infrastructure, while the company's future commitments point to continued large contractual payments. The available agency summary provides no further details about company-specific factors behind the outlook revision.
In a separate legal matter, Meta disclosed a $25 billion civil judgment issued on October 21 in a case brought by the New Mexico attorney general, with post-judgment interest of 15% on the amount. The company said in its filing that it intends to appeal the judgment. The case included allegations related to content management, according to information in the filing, so the amount should not be described as a final fine in a privacy case. The available S&P summary did not link the outlook change to the judgment; the agency attributed it to uncertainty around capital spending and free operating cash flow. Meta shares closed at $620.16 on October 30, compared with $624.52 at the previous session's close.
For the fourth quarter, Meta forecast revenue of between $73 billion and $76 billion, with the midpoint above analysts' estimate of $73.65 billion. The company gave no estimate for 2027 spending, while its non-cancelable commitments extend into that year and include about $121.41 billion due then. S&P's negative outlook, with its rating at AA-, remains tied to what the agency described as uncertainty around capital spending and free cash flow. The company's results combine revenue growth and an expanding user base with capital investments that exceeded operating cash flow in the third quarter. The next performance indicators are due with the fourth-quarter results, while Meta has yet to provide an estimate for next year's spending.