Tech stocks don’t get destroyed for any reason. This is actually very fundamental: free cash flow is drying up for big tech leaders and investments are increasing dramatically.
Investors are wondering if this ratio is completely derailed, given more realistic growth projections for AI.
Combined investments from Amazon, Alphabet, Meta and Microsoft increased by $36.9 billion in the third quarter to $201.9 billion, The Kobeissi Letter team calculated (chart below). This figure has more than doubled in the last 12 months and reached a staggering 356% since the first quarter of 2024.
Big tech has now spent $1.6 trillion on investments over the past three years, according to strategists.
At the same time, these companies’ combined free cash flow fell $33.1 billion last quarter to a negative $26.4 billion, the lowest on record.
Free cash flow for these tech beasts has fallen by $88.2 billion over the last year.
Only Microsoft reported positive free cash flow in the third quarter.
Looking ahead, strategists estimate that these four companies plan to spend an additional $232 billion on investments in the fourth quarter.
The AI business suffered a serious setback on Friday, with more than $1 trillion in market value wiped off as investors worried about the weakening cash flow profiles of big tech.
“The AI narrative is cracking as concerns over profitability intensify,” warned Matt Maley, Miller Tabak’s chief market strategist.
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