The Google Midlothian data center in Texas, November 14, 2025.
Ron Jenkins | Getty Images
Alphabet, Microsoft, Meta And Amazon are expected to spend nearly $700 billion in total this year to fuel their AI development.
For investors who love cash above all else, there may be some warning signs.
As tech earnings season comes to a close this week, Wall Street is getting a clearer picture of how the race for artificial intelligence is poised to accelerate in 2026. The four hyperscalers are now expected to increase their capital spending by more than 60% from historic levels reached in 2025, stocking up on expensive chips, building massive new facilities and buying the networking technology to connect it all.
Achieving those kinds of numbers will require sacrifices in the form of free cash flow. The four largest U.S. internet companies generated a combined $200 billion in free cash flow last year, up from $237 billion in 2024.
The most dramatic decline appears to be ahead as companies invest heavily upfront, promising future returns on investment. This means pressures on margins, less generation of short-term cash and the potential need to rely more on equity and debt markets. Alphabet held a Bond sale for $25 billion in November, and its long-term debt quadrupled in 2025 to $46.5 billion.
Amazon, which Thursday said it plans to spend $200 billion this year and is now looking at negative free cash flow of nearly $17 billion in 2026, according to analysts at Morgan Stanley, while analysts at Bank of America forecast a deficit of $28 billion. In a deposit With the SEC on Friday, Amazon let investors know that it may seek to raise equity and debt as its construction continues.
Despite falling quarterly revenue, Amazon saw its stock fall nearly 6% on Friday, bringing its decline for the year to 9%. Microsoft is down 17%, the biggest of the group, while Alphabet and Meta are up slightly.
While Amazon presented 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 investments this year. Morgan Stanley Managing Director Brian Nowak told CNBC “Powerful lunch” that it plans even greater spending in the coming years, with Alphabet shelling out up to $250 billion in 2027.
Pivotal Research projects that Alphabet’s free cash flow will fall nearly 90% this year, to $8.2 billion, from $73.3 billion in 2025. Mizuho analysts wrote in a report that bearish investors could view the potential doubling of investments this year as “limited FCF in 2026 with an uncertain ROI.”
The analysts nevertheless remain optimistic and all have maintained their buy recommendations on the respective stocks. Jake Dollarhide, CEO of Longbow Asset Management, is with them. He considers Amazon the largest stock in his portfolio, followed by Alphabet in fourth and Microsoft in ninth.
“If you invest all this money in AI, it’s going to reduce your free cash flow,” Dollarhide said. “Should they use debt markets or short-term financing to find the optimal mix of equity and debt? Yes. This is why CEOs and CFOs get paid what they are paid.”
“A little shocking”Analysts at Barclays now see a nearly 90% drop in Meta’s free cash flow, after the social media company said last week that investment expenses this year it will reach $135 billion. They have maintained their overweight, even though they anticipate an even more difficult cash flow situation over the next two years.
“We are now modeling negative FCF for 27 and 28, which is somewhat shocking to us but is likely what we will ultimately see for all companies in the AI infrastructure arms race,” the analysts wrote in a note after the results.
When Meta CFO Susan Li was asked during the earnings call about the company’s capital allocation and future buyout plans, she responded that “the top priority is to invest our resources to position ourselves as a leader in AI.”
At Microsoft, where investment is increasing but at a slower pace than at its tech peers, Barclays estimates that free cash flow will decline by 28% this year before reappearing in 2027.
Representatives for Alphabet, Amazon, Microsoft and Meta declined to comment.
One of the big advantages the tech industry’s most valuable companies have over high-flying AI upstarts like OpenAI and Anthropic is that they’ve accumulated a huge amount of cash in recent years. At the end of the last quarter, the four executives had a total of more than $420 billion in cash and equivalents.
Deutsche Bank analysts wrote in a report on Alphabet on Thursday that the company’s infrastructure buildout was creating a “significant gap.” It’s a sentiment widely shared by industry executives and experts, who see AI as a generational opportunity with revenues in the billions.
Today, companies are testing and building new AI agents to handle all kinds of tasks, including developing applications with just a few text prompts. All of these advances require enormous amounts of computing, which cloud providers say creates insatiable demand for their technology.
“Between what’s happening in the business world and the enterprise world, they’re all leveraging the AI companies Google, Meta, Amazon,” said Daniel Newman, CEO of Futurum Group. told CNBC in an interview “These are basic technologies.”
Morgan Stanley’s Nowak said Alphabet “sees a lot of return signals when it comes to Google Cloud, the return on Google Search and YouTube.” And Amazon CEO Andy Jassy said during his company’s earnings conference call that Amazon Web Services’ growth was “the fastest we’ve seen in 13 quarters.”
But many unknowns remain, and some skeptics fear that an error by OpenAI, which announced more $1.4 trillion in AI deals, could lead to market contagion, as much of the AI industry’s growth prospects are tied to the creator of ChatGPT.
“The truth is we’re on the cusp of a new technological shift and it’s really hard to know the sustainability of the top line,” Michael Nathanson, co-founder of equity research firm MoffettNathanson, told CNBC. “We are entering a new era and predicting the first line has become much more difficult. There are a lot of surprises happening.”
— CNBC’s Deirdre Bosa, Jordan Novet, Annie Palmer and Jonathan Vanian contributed to this report.
WATCH: Megacap tech stocks sell off as AI spending outpaces revenue growth
