S&P Global Ratings downgraded its perspective on Meta's AA- credit rating from stable to negative on Friday, expressing doubt about the pace at which the social media giant's AI expenditures will translate into revenue gains. The agency flagged concerns that Meta faces steeper challenges than rivals in recouping its technology investments.

According to the ratings firm, "Meta's ability to monetize its AI investments is more limited than that of its peers." The company lacks the infrastructure advantage that Amazon, Microsoft and Google possess through their established cloud computing divisions, which generate immediate returns by leasing processing capacity to external customers. S&P indicated uncertainty regarding the timeline for Meta's spending to produce positive financial outcomes.

The agency projects Meta's leverage ratio—debt relative to operating earnings—will exceed 1.0x by 2027, climbing from approximately 0.1x in the prior year. Such a threshold would violate the parameters required to maintain its current credit standing. Mark Zuckerberg previously disclosed that Meta committed $200 billion to artificial intelligence development without certainty of success.

Meta's financial position reflects the strain of this commitment. The company recorded a negative free cash flow of $2.12 billion during the third quarter and has pledged $825 billion in future capital expenditures. To address funding requirements, the firm initiated a $35 billion equity offering earlier this week.

Meta spokesperson Kamran Mumtaz responded to the downgrade, stating: "We respectfully disagree with S&P's assertion about Meta's AI monetization capabilities." He continued, "We see significant product and business opportunities ahead of us, supporting our very strong credit profile."

S&P's move reflects broader scrutiny of Big Tech's capital allocation. The agency previously downgraded Oracle due to its data centre expenditures. Across the sector, technology firms have committed over $3 trillion to infrastructure development. Market sentiment deteriorated as the Nasdaq 100 declined 3.5% during the week and briefly crossed into correction territory following underwhelming earnings reports from major technology companies.

Source: The Next Web