Big Tech's $700B AI Bet Triggers Cash Flow Crisis

$700 billion. That's how much Google, Amazon, Meta, and Microsoft plan to spend on AI infrastructure this year—a staggering 60% increase from 2025's already historic levels. It's the kind of number that makes even seasoned investors do a double-take.

But here's the catch: all that spending is about to create a cash flow crunch that could reshape how we think about tech's financial juggernauts.

Amazon's Shocking Cash Flow Reversal

The most dramatic example comes from Amazon. After announcing $200 billion in planned capex, Morgan Stanley analysts project the e-commerce giant will post negative free cash flow of nearly $17 billion this year. Bank of America sees an even grimmer $28 billion deficit.

That's a stunning reversal for a company that generated positive cash flow for years. Amazon quietly filed with the SEC on Friday, signaling it may need to tap equity and debt markets to fund its AI buildout. The market's reaction was swift—shares dropped almost 6% after earnings, extending the stock's decline to 9% for the year.

Google isn't far behind in the spending race. With up to $185 billion in planned investments, Pivotal Research projects Alphabet's free cash flow will plummet nearly 90% to just $8.2 billion from $73.3 billion last year. Morgan Stanley sees even more aggressive spending ahead, with projections reaching $250 billion by 2027.

Meta's 'Somewhat Shocking' Forecast

Meta's situation might be the most eye-opening. After announcing capex of up to $135 billion this year, Barclays analysts now project the social media giant's free cash flow will drop almost 90%. Even more striking: they're modeling negative cash flow for 2027 and 2028.

"We are now modeling negative FCF for '27 and '28, which is somewhat shocking to us but likely what we eventually see for all companies in the AI infrastructure arms race," the analysts wrote.

Meta CFO Susan Li made the company's priorities crystal clear on the earnings call: "The highest order priority is investing our resources to position ourselves as a leader in AI." Translation: shareholder returns take a backseat to AI dominance.

The Bulls Still Believe

Despite the cash flow concerns, analysts remain largely bullish. Jake Dollarhide, CEO of Longbow Asset Management, counts Amazon as his biggest holding and Alphabet at fourth in his portfolio.

"If you're going to pour all this money into AI, it's going to reduce your free cash flow," Dollarhide said. "That's why CEOs and CFOs are paid what they're paid."

The optimism stems from early signs that AI investments are paying off. Amazon CEO Andy Jassy noted that AWS growth hit "the fastest we've seen in 13 quarters." Morgan Stanley'sBrian Nowak pointed to strong returns in Google Cloud, search, and YouTube.

Businesses are already experimenting with AI agents that can handle complex tasks and build applications from simple text prompts. All of that requires massive amounts of compute power—exactly what these cloud giants are racing to provide.

The Trillion-Dollar Question

The tech giants have one massive advantage over AI upstarts like OpenAI and Anthropic: they're sitting on over $420 billion in combined cash and equivalents. That war chest gives them runway to make these massive bets without immediate existential risk.

Deutsche Bank analysts argue that Alphabet's infrastructure buildout is creating a "meaningful moat." Industry executives see AI as a generational shift that could generate revenue "well into the trillions."

But skeptics worry about sustainability. Michael Nathanson of MoffettNathanson told CNBC: "We're at the dawn of a new technology shift and it's really hard to know the sustainability of top line... predicting the top line has gotten a lot harder."

The Contagion Risk

There's another concern lurking beneath the surface: what happens if OpenAI—which has announced over $1.4 trillion in AI deals—stumbles? So much of the AI industry's growth prospects are tied to the ChatGPT creator that a significant setback could trigger broader market contagion.