Cracks emerging spending boom as AI costs unsettle investors
Alphabet, Amazon, Meta and Microsoft have outlined more than $740 billion in capital spending this year, much of it aimed at AI infrastructure. Investors are…
Alphabet, Amazon, Meta and Microsoft have outlined more than $740 billion in capital spending this year, exposing cracks emerging spending boom as investors question the cost of AI infrastructure. The plans, laid out over the past two weeks, include spending on data centers and chips.
The concern is already showing up in stock prices and company cash flows. Investors who once treated large AI outlays as a sign of confidence are now weighing debt, negative free cash flow and whether the investments will generate enough returns.
Why are investors wary of AI spending?
The companies are expanding infrastructure to meet strong demand for AI computing. But the cost of building that capacity is rising while some core businesses face pressure from AI products that could alter how they make money.
Alphabet offered a clear example this week. Google’s parent reported negative free cash flow of $9.1 billion in the third quarter, its second consecutive quarter in the red, while quarterly capital spending rose to $51.4 billion. Alphabet expects to spend up to $205 billion this year and said spending should continue rising in 2027.
At the same time, Google’s AI Mode chatbot is built into Search, the company’s major advertising business. Search advertising accounts for roughly half of Alphabet’s revenue, but growth slowed to 12%, its weakest pace in five quarters. The company is investing heavily in AI technology that could put pressure on the search business funding that investment.
The market reaction was swift. The Nasdaq fell 2.9% on Friday. Nvidia dropped 4%, Broadcom fell more than 5% and Qualcomm declined 11%. Alphabet, after plunging 12% on Thursday in its worst day on record and losing $500 billion in market value, fell again.
How are Amazon and Meta handling the costs?
Amazon reported negative free cash flow of $42.4 billion over the past 12 months, compared with positive free cash flow of $14.8 billion in the prior year. The company expects capital spending of $220 billion this year.
Its cloud business, AWS, grew revenue 39%. Still, Amazon shares fell 7% after the company reported earnings Thursday. The contrast captures the tension facing investors: demand for cloud computing is growing, but the infrastructure needed to serve it carries a steep bill.
Meta also reported negative free cash flow, at $2.1 billion in the third quarter, as capital spending exceeded operating cash. The company is guiding for as much as $145 billion in capital spending this year. Its ad revenue grew 26%, but Meta shares still lost 10% last week.
Meta has described Muse, its new free personal AI agent, as expensive to operate. Chief Executive Mark Zuckerberg said it is “very compute-intensive to run.” That makes the investment question more direct: even a popular AI feature can add substantial computing costs, while the company still depends on advertising revenue.
Microsoft stands apart, but debt is rising
Microsoft was the only one of the four to report positive free cash flow in its latest quarter, recording $18.6 billion. Capital spending came to $45.2 billion, below the $50 billion the company had projected.
Microsoft said the lower figure did not reflect a deliberate retreat from AI investment. It blamed delays in capacity from third-party providers, a development that also sent shares of smaller companies renting out AI computing power lower.
The spending boom is also being financed through borrowing and securities sales, not only through profits. Microsoft, Alphabet, Amazon, Meta and Oracle raised a combined $326 billion in debt in 2026, triple the amount raised last year, according to S&P Global Market Intelligence.
Demand for AI computing remains strong, and Google, Amazon and Microsoft all recorded gains in their cloud businesses. The pressure falls on whether those gains can justify the cost of meeting demand. For investors, that question now sits alongside the companies’ latest cash-flow figures and spending plans.
