Tech AI spending may approach $700 billion this year, but the blow to cash raises red flags
CNBC·2026-02-06 21:45

Core Viewpoint - The major tech companies, including Alphabet, Microsoft, Meta, and Amazon, are projected to spend nearly $700 billion in 2025 to enhance their AI capabilities, but this aggressive spending may lead to significant declines in free cash flow and increased reliance on debt and equity markets [1][2][4]. Group 1: Capital Expenditures and Free Cash Flow - The four major tech companies are expected to increase capital expenditures by over 60% from historic levels in 2025, driven by investments in high-priced chips and new facilities [2]. - In 2024, these companies generated a combined free cash flow of $200 billion, down from $237 billion in 2023, indicating a downward trend [3]. - Analysts project Alphabet's free cash flow to drop nearly 90% in 2025 to $8.2 billion from $73.3 billion in 2024 due to increased capital expenditures [10]. Group 2: Company-Specific Insights - Amazon plans to spend $200 billion in 2025 and is projected to have negative free cash flow of almost $17 billion in 2026, with estimates from Bank of America suggesting a deficit of $28 billion [5]. - Alphabet is investing heavily in its cloud infrastructure and AI models, with capital expenditures expected to reach up to $185 billion in 2025, and projections of $250 billion by 2027 [9]. - Meta's capital expenditures are projected to reach as high as $135 billion, with analysts forecasting a nearly 90% drop in free cash flow [12]. Group 3: Market Position and Future Outlook - The four leading tech companies have accumulated over $420 billion in cash and equivalents, providing them with a significant advantage over smaller AI startups [16]. - Analysts believe that the infrastructure buildout by these companies is creating a "meaningful moat" in the AI sector, which is viewed as a generational opportunity with potential revenues in the trillions [17]. - Despite the aggressive spending and potential cash flow challenges, analysts maintain bullish ratings on these stocks, indicating confidence in their long-term growth prospects [11].