Alphabet, Amazon, Meta, and Microsoft revealed plans over the past two weeks to allocate upwards of $740 billion toward capital expenditures this year, which Wall Street associates with artificial intelligence infrastructure such as chips and data centers, even as investor nervousness grows.
Earlier in the artificial intelligence boom, shareholders largely welcomed such massive outlays as proof of belief in expansion potential. As the fourth quarter arrives, that enthusiasm appears to be turning into worries regarding mounting debt, negative free cash flow where spending exceeds income, and whether these massive investments will ever yield sufficient returns.
This anxiety swept across the market on Friday. The Nasdaq dropped 2.9%, while chip stocks suffered heavy losses as Nvidia fell 4%, Broadcom dropped over 5%, and Qualcomm declined 11%. Alphabet, which plunged 12% on Thursday in its worst day ever and wiped out $500 billion in market value, dropped further.
A major source of worry is that firms previously boasting high free cash flow from core operations are facing pressure as artificial intelligence threatens the economics of those units. Alphabet offered the clearest illustration this week by reporting negative free cash flow of $9.1 billion in the third quarter, marking its second straight quarter in the red even as quarterly capital expenditures climbed to $51.4 billion. Alphabet anticipates spending up to $205 billion this year and expects those expenditures to continue climbing in 2027.
Meanwhile, the popularity of AI Mode, which is Google's artificial intelligence chatbot feature built directly into Search, is cutting into its primary income source. Google's Search advertising business, representing about half of its revenue, experienced growth slowing to 12%, marking its weakest pace across five quarters. This leaves Google navigating a difficult path by spending billions on artificial intelligence technology that might undermine the search operations funding it.
Amazon finds itself in a comparable situation after posting negative free cash flow of $42.4 billion over the past 12 months, compared with positive free cash flow of $14.8 billion the previous year. The corporation states it anticipates spending $220 billion in capital expenditures this year. Even though revenue at its cloud unit, AWS, rose 39%, Amazon shares dropped 7% following its earnings report on Thursday.
Meta is also burning cash, registering negative free cash flow of $2.1 billion in the third quarter as capital expenditures outpaced operating cash. The company guides to as much as $145 billion in capital expenditures this year. Management mentioned that Muse, its new free personal artificial intelligence agent, is costly to run, with Chief Executive Officer Mark Zuckerberg describing it as very compute-intensive. Ad revenue increased 26%, yet no amount of positive news prevented Meta from suffering a 10% stock decline last week.
Microsoft stood out as the sole exception regarding free cash flow, logging $18.6 billion in positive free cash flow during its latest quarter with capital expenditures hitting $45.2 billion, which was below its targeted $50 billion. Microsoft stated this did not represent an intentional reduction in artificial intelligence spending, citing capacity delays from third-party providers. Consequently, shares of smaller businesses renting out artificial intelligence computing power declined.
The funding for this artificial intelligence infrastructure originates not only from technology giants' earnings but also from stock and bond sales. S&P Global Market Intelligence reports that Microsoft, Alphabet, Amazon, Meta, and Oracle secured a combined $326 billion in debt during 2026, marking triple the amount collected the prior year.
Demand for artificial intelligence computing remains robust, with Google, Amazon, and Microsoft reporting growth in their cloud units. Nevertheless, shareholders are becoming alarmed by the expenses required to fulfill that demand.
These complicated conditions could create challenges for Anthropic's eagerly awaited initial public offering. The artificial intelligence firm filed to go public earlier this week, and its future expansion relies on acquiring massive amounts of compute. The Financial Times reported on Friday that Blackstone cautioned investors that the company might fail to qualify for an investment-grade rating following its public offering, implying it could ultimately rely more heavily on hyperscalers and third parties to finance its infrastructure goals.
