A general view of the Google Midlothian Data Center where Texas Gov. Greg Abbott and Alphabet and Google CEO Sundar Pichai are scheduled to speak on Nov. 14, 2025 in Midlothian, Texas.
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Alphabet, Microsoft, Meta and Amazon are expected to spend nearly $700 billion combined this year to fuel their AI buildouts.
For investors who love cash above all else, some warning signs may be flashing.
With the heart of tech earnings season wrapping up this week, Wall Street has a clearer picture of how the artificial intelligence race is poised to accelerate in 2026. The four hyperscalers are now projected to increase capital expenditures by more than 60% from the historic levels reached in 2025, as they load up on high-priced chips, build new mammoth facilities and buy the networking technology to connect it all.
Getting to those kinds of numbers is going to require sacrifice in the form of free cash flow. Last year, the four biggest U.S. internet companies generated a combined $200 billion in free cash flow, down from $237 billion in 2024.
The more dramatic drop appears to be ahead, as companies invest heavily upfront, promising future returns on investment. That means, margin pressures. less cash generation in the near term and the potential need to further tap the equity and debt markets. Alphabet held a $25 billion bond sale in November, and it’s long-term debt quadrupled in 2025 to $46.5 billion.
Amazon, which on Thursday said it expects to spend $200 billion this year, is now looking at negative free cash flow of almost $17 billion in 2026, according to analysts at Morgan Stanley, while Bank of America analysts see a deficit of $28 billion. In a filing with the SEC on Friday, Amazon let investors know that it may seek to raise equity and debt as its buildout continues.
Despite beating on revenue for the quarter, Amazon saw its stock sink almost 6% on Friday, bringing its drop for the year to 9%. Microsoft is down 17%, the most in the group, while Alphabet and Meta are up slightly.
While Amazon laid out the most aggressive spending plan among the megacaps, Alphabet wasn’t far behind. The company, which is investing in its cloud infrastructure business as well as its Gemini models, sees up to $185 billion in capex this year. Morgan Stanley managing director Brian Nowak told CNBC’s “Power Lunch” that he’s projecting even more spend in coming years, with Alphabet shelling out up to $250 billion in 2027.
Pivotal Research projects Alphabet’s free cash flow to plummet almost 90% this year to $8.2 billion from $73.3 billion in 2025. Analysts at Mizuho wrote in a report that bearish investors may look at the potential doubling of capex this year as “leaving limited FCF in 2026 with uncertain” return on investment.
Still, the analysts remain bullish and all kept their buy recommendations on the respective stocks. Longbow Asset Management CEO Jake Dollarhide is right there with them. He counts Amazon as his biggest holding, followed by Alphabet at fourth and Microsoft ninth in his portfolio.
“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.”
‘Somewhat shocking’
Analysts at Barclays now see a drop of almost 90% in Meta’s free cash flow, after the social media company said last week that capex this year will reach as high as $135 billion. They kept their overweight rating even as they forecast an even tougher cash position the next two years.
“We are now modeling negative FCF for ’27 and ’28, which is somewhat shocking to us but likely what we eventually see for all companies in the AI infrastructure arms race,” the analysts wrote in a note after earnings.
When Meta CFO Susan Li was asked on the earnings call about capital allocation and the company’s plans for future buybacks, she responded that the “highest order priority is investing our resources to position ourselves as a leader in AI.”
At Microsoft, where capex is going up but at a slower rate than at its tech peers, Barclays estimates that free cash flow will slide by 28% this year before popping back up in 2027.
Representatives from Alphabet, Amazon, Microsoft and Meta declined to comment.
A big advantage the tech industry’s most-valuable companies have over high-flying AI upstarts like OpenAI and Anthropic, is that they’ve accumulated a massive cash pile in recent years. As of the end of the latest quarter, the four leaders had a total of over $420 billion in cash and equivalents.
Deutsche Bank analysts wrote in a report on Thursday about Alphabet that the company’s infrastructure buildout is creating a “meaningful moat.” It’s a sentiment shared broadly by industry executives and experts who view AI as a generational opportunity with revenue reaching will into the trillions.
Businesses today are testing and building new AI agents to handle all sorts of tasks, including developing applications with just a few text prompts. All of that advancement requires hefty amounts of compute, which the cloud providers say is creating insatiable demand for their technology.
“Between what’s happening in business and enterprise — they are all building on these AI companies Google, Meta, Amazon,” Futurum Group CEO Daniel Newman told CNBC in an interview “These are core technologies.”
Morgan Stanley’s Nowak said Alphabet is “seeing a lot of signal on return when it comes to Google Cloud, return on Google search, and YouTube.” And Amazon CEO Andy Jassy said on his company’s earnings call that growth at Amazon Web Services saw “the fastest we’ve seen in 13 quarters.”
But plenty of unknowns remain, and some skeptics worry that a slip-up at OpenAI, which has announced over $1.4 trillion in AI deals, could lead to a market contagion because so much of the AI industry’s growth prospects are tied to the ChatGPT creator.
“The truth is, we’re at the dawn of a new technology shift and it’s really hard to know the sustainability of top line,” Michael Nathanson, co-founder of equity research firm MoffettNathanson, told CNBC. “We’re entering new times and predicting the top line has gotten a lot harder. There’s a ton of surprising going on.”
— CNBC’s Deirdre Bosa, Jordan Novet, Annie Palmer and Jonathan Vanian contributed to this report.
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