Billionaire Zuckerberg’s Meta may burn $71bn, S&P warns

Meta Platforms Inc., the social media company controlled by American billionaire Mark Zuckerberg, had its credit outlook cut to negative by S&P Global Ratings, which said the company’s spending on artificial intelligence could leave it about $71 billion short of cash next year.

S&P changed the outlook to negative from stable on Oct. 30 and kept Meta’s AA- credit rating unchanged. The firm said there is “significant uncertainty” over how long Meta’s heavy capital spending will last, and that it is now “less certain that it will curtail its spending as previously anticipated.”

A negative outlook means S&P could lower the rating, typically within two years. The firm said it may do so if Meta’s debt, adjusted for leases, stays above 1.0 times its earnings before interest, taxes, depreciation and amortization, and if its free operating cash flow is still negative beyond 2028.

Meta disagreed. “We respectfully disagree with S&P’s assertion about Meta’s AI monetization capabilities,” a company spokesperson said, adding that Meta sees “significant product and business opportunities ahead of us.”

Spending outruns cash

The move came nine days after Meta reported its first quarterly free cash flow deficit in more than a decade. In the three months to Sept. 30, the company spent $34.9 billion on capital projects, up about 80% from a year earlier, against operating cash flow of $32.8 billion, leaving a gap of $2.1 billion. A year earlier, it generated $10.6 billion of free cash flow.

Meta expects to spend $135 billion to $145 billion on capital projects this year, mostly on data centers and chips for its AI models. S&P now expects that figure to rise to more than $225 billion in 2027 and about $252 billion in 2028, well above its earlier forecasts of $163 billion and $178 billion. It sees free operating cash flow deficits peaking at about $71 billion in 2027 and continuing into 2028, a year in which it had previously expected Meta to generate cash.

S&P also said Meta has fewer ways to earn money from its AI investments than its big technology peers, several of which already earn revenue by renting computing capacity to other companies. Meta plans to make its money back through better advertising tools and paid AI agents such as Muse, its personal assistant, but S&P said “the timing of material contributions remains unclear.”

Much of Meta’s build-out is being done through leases rather than borrowing. Its future lease commitments jumped to $355.7 billion at the end of September from about $279 billion three months earlier. S&P expects its adjusted leverage, which counts those leases as debt, to climb to 1.1 times in 2027 and 1.3 times in 2028, when many of the leases begin, from 0.1 times in 2025. Meta’s long-term debt stood at $80.9 billion on Sept. 30.

Selling stock to fund AI

To ease the strain, Meta raised $37.5 billion in late October, selling $25 billion of common stock and $12.5 billion of mandatory convertible preferred shares. It plans a further $60 billion of share sales through an at-the-market program starting in 2027.

Those sales will use a new class of nonvoting Class C stock that Meta’s board approved in October and that will be handed to existing shareholders as a one-time dividend in January. The structure lets Meta raise money without diluting Zuckerberg’s control. The company also signed an agreement with him covering his future sales of Class C shares and his continued service.

Zuckerberg, 42, co-founded Facebook in his Harvard University dorm room in 2004 and is Meta’s chairman and chief executive officer. He owns about 13% of the company, but special Class B shares with 10 votes each give him a majority of the voting power.

The business itself is still growing quickly. Meta’s third-quarter revenue rose 26% to $64.6 billion, and it expects $73 billion to $76 billion in the fourth quarter. Net income was $9.86 billion, after a $9.89 billion charge tied to a settlement with U.S. states over the effects of social media on teenagers.