Tech AI spending approaches $700 billion in 2026, cash taking big hit
A general view of the Google Midlothian Data Center, where Texas Governor Greg Abbott and Alphabet and Google CEO Sundar Pichai are scheduled to speak on November 14, 2025 in Midlothian, Texas.
Ron Jenkins | Getty Images
Alphabet, Microsoft, Meta And Amazon In total, they are expected to spend around $700 billion this year to support AI developments.
Some warning signs may be flashing for investors who love cash above all else.
With tech earnings season wrapping up this week, Wall Street has a clearer picture of how the AI race is poised to accelerate in 2026. The four hyperscalers are expected to increase capital expenditures by more than 60% from historical levels reached in 2025 by loading up on high-priced chips, building massive new facilities and purchasing the network technology to connect it all.
Achieving such numbers will require sacrifice in terms 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.
A more dramatic decline is expected as companies invest heavily upfront and promise returns on investment in the future. This means margin pressures. potential for less cash generation and greater exposure to equity and debt markets in the near term. Alphabet organized a $25 billion bond sale In November, long-term debt quadrupled to $46.5 billion in 2025.
Amazon, which said Thursday it expects to spend $200 billion this year, is now looking at negative free cash flow of about $17 billion in 2026, according to Morgan Stanley analysts, while Bank of America analysts see a $28 billion shortfall. One filing In a meeting with the SEC on Friday, Amazon told investors it may seek to raise equity and debt as growth continues.
Despite the decline in quarterly revenue, Amazon saw its shares fall almost 6% on Friday, bringing its decline for the year to 9%. Microsoft had the biggest decline of the group, falling 17 percent, while Alphabet and Meta rose slightly.
While Amazon put forward the most aggressive spending plan among the mega-majors, Alphabet was not far behind. The company, which invests in cloud infrastructure business as well as Gemini models, expects investments of up to 185 billion dollars this year. Morgan Stanley managing director Brian Nowak told CNBC’s “Power Lunch” that he projects even more spending in the coming years, with Alphabet looking to generate up to $250 billion in revenue by 2027.
Pivotal Research predicts Alphabet’s free cash flow will drop almost 90% this year to $8.2 billion from $73.3 billion in 2025. Analysts at Mizuho wrote in a report that bearish investors may view the potential doubling of capex this year as “an unceremonious departure from limited FCF in 2026.”
Still, analysts remain bullish and all maintain their buy recommendations on the respective stocks. Longbow Asset Management CEO Jake Dollarhide is also with them. It counts Amazon as its largest holding in its portfolio, followed by Alphabet in fourth place and Microsoft in ninth place.
“If you put all this money into AI, it will reduce your free cash flow,” Dollarhide said. “Do they need to go to debt markets or short-term financing to find the optimal mix of equity and debt? Yes. That’s why CEOs and CFOs are paid on par.”
‘A bit shocking’
Analysts at Barclays see an almost 90% drop in Meta’s free cash flow after the social media company’s announcement last week. Capital spending this year will reach $135 billion. They maintained their overweight rating despite forecasting an even more challenging cash position for the next two years.
“We’re currently modeling negative FCF for ’27 and ’28, which is a bit of a shock to us but is likely what we’ll eventually see for all companies in the AI infrastructure arms race,” analysts wrote in a note after earnings.
When Meta CFO Susan Li was asked on the earnings call about capital allocation and the company’s future buyback plans, she replied that “the highest priority is investing our resources to position ourselves as a leader in the AI space.”
At Microsoft, where capex is rising at a slower rate than its tech peers, Barclays forecasts free cash flow will fall 28% this year and rise again in 2027.
Representatives from Alphabet, Amazon, Microsoft and Meta declined to comment.
One big advantage that the tech sector’s most valuable companies have over high-flying AI companies like OpenAI and Anthropic is that they’ve amassed a huge pile of cash in recent years. As of the end of the last quarter, the four leaders had a total of over $420 billion in cash and equivalents.
The company’s infrastructure development has created a “meaningful moat,” Deutsche Bank analysts wrote in a report on Alphabet on Thursday. It’s a view widely shared by industry executives and experts who see AI as an opportunity for generations with incomes running into the trillions.
Today, businesses are testing and building new AI agents to perform all kinds of tasks, including developing applications with just a few text prompts. All of these advances require massive amounts of computing, and cloud providers say this has created an insatiable demand for their technology.
“With everything going on in the business and the enterprise, it’s all based around AI companies like Google, Meta, and Amazon,” Futurum Group CEO Daniel Newman told CNBC in an interview. “These are fundamental technologies.”
Morgan Stanley’s Nowak said Alphabet “sees a lot of blips in the return when it comes to Google Cloud, Google search and YouTube.” Amazon CEO Andy Jassy said on his company’s earnings that growth at Amazon Web Services was “the fastest growth we’ve seen in 13 straight quarters.”
But there are still many unknowns, and some skeptics worry that a shift at OpenAI, which has announced more than $1.4 trillion in AI deals, could lead to market sprawl because the AI industry’s growth prospects depend on the ChatGPT creator.
“The reality is that we’re at the dawn of a new technology 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 new times and we predict that it will become much more difficult to stay in the top ranks. There are a lot of surprising things happening.”
— CNBC’s Deirdre Bosa, Jordan Novet, Annie Palmer and Jonathan Vanian contributed to this report.
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