The richest companies in world history are spending so much money on infrastructure that supports AI that they are burning through billions in cash and threatening a recent AI-fueled stock market rally as Wall Street reels.
The latest financial disclosures from four of the biggest hyperscalers, Amazon, Alphabet, Microsoft and Meta, as well as Elon Musk’s upcoming AI player SpaceX, which includes xAI, revealed that the small group of tech heavyweights is expected to invest up to $828 billion in capital spending this year. These expenses include data centers, high-power chips and other infrastructure that power AI.
The $828 billion in capital spending represents expected 2026 spending of $220 billion for Amazon, up to $205 billion for Alphabet, about $170 billion for Microsoft, up to $145 billion for Meta and up to $88 billion for SpaceX, according to company releases and earnings calls.
By now, the massive AI infrastructure bill has surpassed the market value of well-known companies like energy giant ExxonMobil or payments company Mastercard and is even approaching the estimated $1 trillion that America is spending on defense in this fiscal year, itself the largest in the world. Several banks, including Evercore and Bank of America, predict that AI-related capital spending will reach $1 trillion in 2027.
Partly in response to the massive spending, stocks fell Friday, leading the Nasdaq and S&P 500 to their worst one-day performances since June. The tech-heavy Nasdaq closed 2.9% lower, while the S&P 500 fell 1.8%. Nasdaq 100 companies lost more than $1 trillion in market value. US chipmaker Intel’s poor forecast for the last three months of the year also played a role.
Some of the market nervousness may be due to concerns over free cash flow, which has long been a source of strength for Silicon Valley companies but has recently taken a turn. Four of the five tech giants spending hundreds of billions cumulatively on investments had negative free cash flow in the third quarter (Microsoft was the exception), meaning they spent more on buildings, equipment and other capital investments than they generated cash from operations.
As companies that built their fortunes selling software and services invest more and more money in physical infrastructure, they are looking to borrow or raise more, in some cases, to pay for it. With a handful of tech stocks accounting for an outsized share of the S&P 500, the success or failure of these companies’ investments could have huge implications for the market and the millions of Americans who have invested in it.
Aleksandar Tomic, an economist and associate dean at Boston College, warned that these infrastructure investments could have consequences far beyond Silicon Valley if they don’t come to fruition, especially as companies increasingly rely on debt to finance expansion. This increase in borrowing could increase the cost of capital for other companies, while a slowdown among tech giants could ripple across the economy.
“If these tech companies sneezed, the rest of the market would get pneumonia,” Tomic told Fortune.
A costly gamble
Microsoft’s recent financial results show how staying in the AI race affects technology companies’ overall decisions.
For decades, the software giant has been one of the most valuable cash-generating companies in the world. It made nearly $134 billion in profits in its most recent fiscal year and generated nearly $183 billion in operating cash flow. Yet over the same period, its cash spending on property, plant and equipment increased by about 80%.
Microsoft announced a $25 billion bond offering Thursday, its first bond sale in more than nine years. The company said it would use the money for general corporate purposes, which could include capital expenditures.
Microsoft remained positive last quarter, unlike competitors Amazon, Alphabet, Meta and SpaceX, but as infrastructure costs rise the company is looking to raise cash.
Meta reported negative free cash flow of $2.1 billion last quarter, compared to positive cash flow of $10.6 billion during the same period a year earlier. On Monday, it announced it would issue new shares as part of a plan to raise up to $95 billion, giving it more funds it could devote to AI infrastructure.
Oracle, another major player in the AI infrastructure race, is also relying on borrowing and other means to support its expansion. The company told investors this week that it does not expect to return to positive free cash flow until the second half of its next fiscal year, which would run through the six months leading up to May 2028. After that, the company said it expects free cash flow to reach at least $30 billion for the fiscal year ending in May 2029.
The AI reward
For now, some big tech companies can point to the encouraging sign that customers are paying more than ever for computing power. Google’s cloud revenue more than doubled last quarter, while Microsoft’s Azure business grew 48% and Amazon Web Services’s grew about 39%.
Cloud providers make money in part by renting compute to AI providers. As demand for AI is also expected to increase in the coming years, these operations could provide a welcome source of revenue for hyperscalers. Yet not all cloud revenue comes from AI, and increased sales don’t necessarily validate today’s giant investments.
In other positive news for the AI sector, Claude maker Anthropic filed paperwork for an IPO this week, helping to send the Nasdaq up 0.8% on Monday. The filing also drew attention to more than $265 billion in future minimum purchase commitments, primarily for cloud computing and other infrastructure services, which could be a boon for hyperscalers.
Yet overall, companies today are banking on huge sums of money to build out the computing capacity they expect to need years from now, a move that might be prescient but also carries big near-term risks.
For investors, the question is increasingly whether AI will become profitable enough to justify the huge bill. If expensive data centers and chips don’t generate the profits companies expect, the consequences could ripple far beyond Silicon Valley, to the U.S. economy and beyond, Tomic said.
“We need the infrastructure, we need that capital, but can they maintain it? I think that’s the big big question,” he said.
Amazon CEO Andy Jassy, whose company on Thursday reported negative free cash flow of more than $42 billion over the past year, made it clear during the company’s third-quarter earnings conference call that he saw no choice but to continue spending.
“Would it be more practical if this type of acceleration and opportunity happened over 25 years and you could spread out the CapEx over 25 years,” Jassy asked an analyst on the call. “Yes, maybe it’s more convenient, but that’s not the world we live in, and that’s not the opportunity.”
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