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Cracks are emerging in the AI spending boom
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- DeepHorus
Investors are nervous about AI infrastructure spending as Alphabet, Amazon, Meta and Microsoft pledge over $740 billion in capital expenditure this year. The outlays for data centers and chips were once rewarded as proof of growth confidence. In the fourth quarter, concerns about negative free cash flow, debt and uncertain returns are replacing enthusiasm.
The anxiety hit markets on Friday. The Nasdaq fell 2.9%, Nvidia dropped 4%, Broadcom more than 5% and Qualcomm 11%. Alphabet, down 12% Thursday in its worst day on record and $500 billion of value erased, fell again.
Alphabet showed the strain. It reported negative free cash flow of $9.1 billion in the third quarter, its second straight red quarter, as capex reached $51.4 billion. Search advertising growth slowed to 12%, its weakest in five quarters, while annual capex could reach $205 billion.
Amazon reported negative free cash flow of $42.4 billion over 12 months, versus positive $14.8 billion a year earlier, and expects $220 billion in capex. AWS revenue grew 39%, yet its stock fell 7%. Meta posted negative $2.1 billion free cash flow, guided to $145 billion capex and fell 10% despite 26% ad growth.
Microsoft was the exception, recording $18.6 billion positive free cash flow with $45.2 billion capex, below its $50 billion forecast. It blamed third-party capacity delays, not a pullback. Shares of smaller AI-compute renters sank.
Debt is funding part of the build-out. Microsoft, Alphabet, Amazon, Meta and Oracle raised $326 billion in debt in 2026, triple last year, per S&P Global Market Intelligence. Cloud demand remains strong, but investors fear the cost of meeting it.
The tension could complicate Anthropic’s IPO, filed this week, because growth depends on massive compute. How Big Tech balances spending and returns will shape the next AI phase. Investors will watch free cash flow closely.
