The artificial intelligence boom is demanding massive capital investment from the tech industry’s largest players and the resulting strain on cash flow is beginning to worry investors. Alphabet, Microsoft, Meta, and Amazon are collectively expected to spend nearly $700 billion this year on AI-related infrastructure, a figure that promises to accelerate in the coming years.
While these companies have historically generated substantial free cash flow, the pace of AI investment is poised to dramatically alter that dynamic. Last year, the four tech giants combined generated $200 billion in free cash flow, down from $237 billion in 2024. Analysts predict a more significant drop in 2026 as capital expenditures surge.
The need to fund this build-out is already prompting some companies to tap debt markets. Alphabet completed a $25 billion bond sale in November, increasing its long-term debt to $46.5 billion – a fourfold increase year-over-year. Amazon is also signaling a potential need for additional financing. The company now anticipates negative free cash flow of almost $17 billion in 2026, according to Morgan Stanley, with Bank of America analysts projecting a deficit of $28 billion. In a recent SEC filing, Amazon indicated it may seek to raise equity and debt to support its continued expansion.
The market reaction has been mixed. Despite reporting strong revenue, Amazon’s stock fell almost 6% on Friday, bringing its year-to-date decline to 9%. Microsoft is down 17% for the year, the largest drop among the four companies. Alphabet and Meta have seen slight gains.
Amazon is leading the charge in terms of planned spending, projecting a $200 billion outlay this year. Alphabet is close behind, with plans for up to $185 billion in capital expenditures. Morgan Stanley managing director Brian Nowak projects Alphabet’s spending could reach $250 billion by 2027. Pivotal Research forecasts Alphabet’s free cash flow will plummet almost 90% this year to $8.2 billion, down from $73.3 billion in 2025. Mizuho analysts cautioned that the potential doubling of capital expenditures this year leaves “limited FCF in 2026 with uncertain” return on investment.
Meta is also significantly increasing its capital spending, with projections reaching as high as $135 billion this year. Barclays analysts now foresee a nearly 90% drop in Meta’s free cash flow, even modeling negative free cash flow for 2027 and 2028, describing the situation as “somewhat shocking.” Meta CFO Susan Li emphasized on the company’s earnings call that investing in AI is the “highest order priority.”
Microsoft, while also increasing capital expenditures, is doing so at a slower rate than its peers. Barclays estimates a 28% decline in free cash flow this year, with a rebound expected in 2027.
Despite the near-term cash flow pressures, analysts remain largely bullish on these companies. Longbow Asset Management CEO Jake Dollarhide, whose portfolio is heavily weighted towards Amazon, Alphabet, and Microsoft, acknowledges the impact on free cash flow but believes the investment is justified. “If you’re going to pour all this money into AI, it’s going to reduce your free cash flow,” Dollarhide said. “Do they have to go to the debt markets or short-term financing to find the optimal mix of equity and debt? Yeah. That’s why CEOs and CFOs are paid what they’re paid.”
The companies’ substantial cash reserves – exceeding $420 billion collectively – provide a buffer. Deutsche Bank analysts argue that Alphabet’s infrastructure build-out is creating a “meaningful moat,” reinforcing the view that AI represents a generational opportunity. The demand for compute power, driven by businesses developing AI applications, is fueling insatiable demand for cloud services.
Futurum Group CEO Daniel Newman highlighted the symbiotic relationship between the tech giants and the broader AI ecosystem. “Between what’s happening in business and enterprise — they are all building on these AI companies Google, Meta, Amazon,” he said. Morgan Stanley’s Nowak pointed to positive returns on investment in Google Cloud, Google Search, and YouTube, while Amazon CEO Andy Jassy noted that Amazon Web Services experienced its fastest growth in 13 quarters.
However, uncertainties remain. Some analysts express concern that a setback at OpenAI, which has facilitated over $1.4 trillion in AI deals, could trigger a broader market correction given the industry’s reliance on the ChatGPT creator. Michael Nathanson, co-founder of MoffettNathanson, cautioned that predicting top-line growth in this new technological landscape is increasingly difficult. “We’re entering new times and predicting the top line has gotten a lot harder. There’s a ton of surprising going on.”
