S&P turns negative on Meta as 2027 AI spending forecast tops $225bn

S&P revised Meta's credit outlook to negative, forecasting significant free cash flow deficits through 2028. Meta's Q3 free cash flow turned negative, and capex surged. Wall Street's estimates are less severe. Meta plans a $95B stock sale for AI funding. S&P doubts Meta's AI monetization compared to peers like Alphabet. Meta disputes S&P's view on its AI capabilities.

Nvidia, AMD, and Broadcom agreed to invest $5 billion in Meta's $25 billion stock sale. Analysts question the circular financing, where chipmakers invest in a company that buys their products. Meta's capital needs and AI infrastructure spending are under scrutiny. S&P Global revised Meta's outlook to negative, citing cash flow concerns and high capital expenditure.

S&P downgraded Meta's credit rating outlook to 'negative', citing uncertain returns from AI investments and high capital expenditure. Meta's free cash flow turned negative in Q3, with $2.1B spent on investments exceeding operating income. The company plans $145B in capital expenditures this year, with a projected $710B funding shortfall next year. Meta disputes S&P's assessment, but market concerns grow as Alphabet and Amazon also face negative cash flows from AI investments.

The UK's CMA is investigating Meta's terms for businesses, focusing on potential abuse of a dominant position. The terms could allow Meta to use publisher and advertiser content for AI features without consent. Meta delayed the terms' rollout and disputes the investigation's grounds. Separately, the CMA is gathering information about Meta One, a business subscription service.

AMD will invest $1 billion in Meta's $37.5 billion equity offering, buying 1.6 million shares at $625. Meta holds a warrant for up to 160 million AMD shares, vesting as it purchases AMD chips. AMD's investment aligns with its supply agreement and potential future revenue from Meta's AI projects. Meta's capital expenditure exceeded cash flow in Q3, necessitating the equity raise.

Meta settled a lawsuit with an 18-year-old who alleged Instagram and Facebook were designed to encourage addictive behavior. The settlement ends claims against Meta in an ongoing trial, leaving Snap as the sole defendant. Meta maintains it has been developing safety features for over a decade. The case could influence future disputes over social media addiction.