Meta's AI cash deficit and rating warning hidden behind euro bond success

Meta drew record orders for its first-ever euro-denominated corporate bonds, but behind the spectacular success lie worsening cash generation and a credit rating downgrade warning. The massive fundraising in global bond markets was underpinned by a generous rate premium over rivals. As capital spending for artificial intelligence (AI) infrastructure snowballs, free cash flow turned negative for the first time ever, and funding costs are climbing sharply.

On Nov. 4 (local time), Meta issued six tranches of euro-denominated corporate bonds totaling 9 billion euros with maturities ranging from about four years to 38 years in the European bond market. The debut issuance attracted orders of 53 billion euros, about six times the planned amount. That far exceeded the previous single-company record of 31 billion euros set by Anheuser-Busch InBev, the world's largest brewer, in 2016. A day earlier, Meta raised $15 billion in dollar bonds in the U.S. market, securing about $25 billion in liquidity over two days.

More important than the headline subscription ratio is the funding cost Meta had to pay. In the euro bond sale, Meta promised rates far higher than those recently offered by Alphabet, the parent of cloud rival Google. The spread on the 6.25-year tranche was set at 1.35 percentage points over mid-swaps, 0.45 percentage point wider than Alphabet's similar-maturity bonds. The $15 billion 30-year dollar bond issued the previous day also priced at 2.2 percentage points over U.S. Treasuries, 0.9 percentage point wider than in April 2026. Investors who once lent to big tech on the strength of pristine credit are now strictly demanding risk premiums commensurate with AI investment uncertainty.

The fundamental reason for soaring borrowing costs is that Meta's core cash generation cannot keep pace with astronomical capital spending. In the third quarter, free cash flow swung to a deficit of $2.12 billion. The result came as Meta sharply raised its full-year capital expenditure guidance to as much as $145 billion. With operating cash flow alone insufficient to fund infrastructure expansion, Meta has broadened its capital-raising channels beyond bonds to equities. It has already completed offerings of $25 billion in common stock and $12.5 billion in convertible preferred stock, and is pursuing up to $97.5 billion in share issuance plans including a $60 billion at-the-market program using non-voting Class C shares.

The rapid rise in financial leverage has drawn a direct warning from global credit rating agencies. On Oct. 30, S&P Global Ratings kept Meta's issuer credit rating at 'AA-', the fourth-highest level, but lowered the rating outlook to 'negative' from 'stable'. S&P estimated Meta's free cash flow deficit will widen to $22 billion in 2026 and $71 billion in 2027, with a negative trend of $39 billion continuing in 2028. It noted that debt ratios are deteriorating rapidly as Meta signs massive infrastructure leases for mega data centers such as Bain and Sofaipila. Adjusted leverage, which stood at 0.1 times in 2025, is projected to exceed the 1.0 times downgrade trigger to reach 1.1 times in 2027.

A painful point is Meta's structural business limitation. Unlike Microsoft, Amazon and Alphabet, which can immediately recoup part of their massive capital spending by renting cloud resources such as data centers to external corporate customers, Meta's infrastructure investment is concentrated on internal consumption such as optimizing its own advertising algorithms and upgrading services. It is a structure that makes it difficult to demonstrate visible cash inflows in the short term despite pouring in enormous capital. Meta countered that new products and advertising monetization opportunities will allow it to maintain solid creditworthiness, but S&P and others are weighing heavily the uncertainty of monetization speed relative to overheated spending.

Behind the spectacular bond orders lies the cold reality that investors want compensation in the form of higher rates. If Meta fails to meaningfully control capital spending within the next one to two years or to prove clear profitability improvement from AI investments, its credit rating risks falling one more notch into the 'A' category. A downgrade would push borrowing costs higher, which in turn would squeeze cash flow in a vicious cycle. Amid the bond-buying frenzy, Meta's financial soundness has already entered a serious test.

※ This article is an AI translation of the Korean original published by Korea Credit News; it was checked by automated quality guards and published by the English edition desk.