Alphabet, Microsoft, Meta, and Amazon will spend close to $700 billion to fund their AI build-outs. The investors who want to spend cash above all else, there might have warning indications flashing.
As the tech earnings season comes to a close this week, Wall Street now has a clearer understanding of how the artificial intelligence race will gain momentum in 2026.
The four hyperscalers are currently estimated to begin to spend more than 60 percent of the historic amounts of capital expenditure in 2025 since they stock up on high-priced chips, construct new mammoth plants, and purchase the networking technology to bond it all together.
Reaching such numbers will involve compromises in the free cash flow. The four largest internet companies in the United States earned a combined $200 billion in free cash flow last year, compared to $237 billion in 2024.
The more dramatic decline seems to be in the future, with companies making huge investments that may yield later returns on investment. That implies margin pressures, lower cash generation in the short run, and possibly additional requirements to access the equity and debt markets.
However, Alphabet issued a $25 billion bond sale in November, and its long-term debt quadrupled in 2025 to $46.5 billion.
According to analysts at Morgan Stanley, while Bank of America analysts see a deficit of $28 billion, Amazon stated on Thursday that it projects to spend $200 billion this year, and it is currently expecting negative free cash flows of nearly $17 billion in 2026.
Amazon informed investors in a filing with the SEC on Friday that it can raise equity and debt as its build-out goes on. Although Amazon smashed the quarterly revenue numbers, on Friday, its stock fell nearly 6 percent, making its annual decline nearly 9 percent.
Therefore, Microsoft is the worst performing, falling 17 percent, and Alphabet and Meta are slightly higher. Whereas Amazon presented the most ambitious expenditure strategy among the megacaps, Alphabet was close.
The firm is engaged in investing in its cloud infrastructure business and its Gemini models, with a maximum of $185 billion of capex in the year. Morgan Stanley managing director Brian Nowak told CNBC’s “Power Lunch” that he’s anticipating more spending in the coming years, with Alphabet shelling out up to $250 billion in 2027.
Pivotal Research projects Alphabet’s free cash flow to plummet about 90 percent 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.
Nonetheless, the analysts are optimistic, and none of them withdrew their buy rating on the respective stocks. Longbow Asset Management CEO Jake Dollarhide is right there with them. Amazon is the largest holding in his portfolio, followed by Alphabet in fourth place and Microsoft in ninth place.
Dollarhide said, “If you’re going to pour all this money into AI, it’s going to reduce your free cash flow. 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.”
Analysts at Barclays believe that the free cash flow of Meta will fall by nearly 90 percent, following a claim by the social media firm last week that it will have a capex this year of up to $135 billion. Even as they predict an even more challenging cash position in the next two years, they maintained their overweight rating.
The analysts wrote in a note after earnings, “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.”
In the earnings call, when Meta CFO Susan Li was questioned about how the company would allocate capital and future intentions regarding buybacks, she answered that the “highest order priority is investing our resources to position ourselves as a leader in AI.”
The capex of Microsoft is increasing faster than that of its technology peers, but slower than at Microsoft itself, which is why Barclays predicts that free cash flow will decline by 28 percent this year and then explode in 2027. Representatives from Alphabet, Amazon, Microsoft, and Meta declined to comment.
One of the largest strengths that the most-valuable companies in the tech industry possess over the high-flying AI startups, such as OpenAI and Anthropic, is that they have been able to build a huge cash hoard in the past several years.
By the end of the latest quarter, the four leaders had a total of over $420 billion in cash and equivalents. In a report issued on Thursday on Alphabet, analysts at Deutsche Bank stated that the infrastructure construction of the company is building out a “meaningful moat.”
It has been widely expressed by industry leaders and analysts who see AI as a generational platform capable of generating will into the trillions of dollars in revenue.
Today, businesses are experimenting and creating new AI agents to perform all kinds of chores, including creating applications with only a few text inputs.
All of that development needs to consume enormous quantities of compute, which the cloud suppliers claim is causing an unquenchable demand on their technology.
Futurum Group CEO Daniel Newman informed CNBC in an interview, “Between what’s happening in business and enterprise — they are all building on these AI companies, Google, Meta, Amazon. These are core technologies.”
Morgan Stanley’s Nowak added that Alphabet is “seeing a lot of signal on return when it comes to Google Cloud, return on Google search, and YouTube.” Amazon CEO Andy Jassy stated on his company’s earnings call that growth at Amazon Web Services was “the fastest we’ve seen in 13 quarters.”
Meanwhile, there are still plenty of unknowns, and even critics fear that the failure of OpenAI, which has already made over 1.4 trillion in AI deals, can trigger a market contagion since much of the AI industry’s growth opportunities are pegged on the ChatGPT maker.
Michael Nathanson, co-founder of equity research firm MoffettNathanson, told CNBC, “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. We’re entering new times, and predicting the top line has gotten a lot harder. There’s a ton of surprising going on.”
