Wall Street is turning worried about AI infrastructure spending just as the major technology firms increase their outlays.
Over the last fortnight, Alphabet, Amazon, Meta, and Microsoft have announced plans to spend more than $740 billion on capital expenditures this year. Analysts interpret these figures as investment in AI infrastructure, specifically data centres and chips.
Earlier in the boom, investors treated such large outlays as proof of confidence in the technology. That enthusiasm appears to be fading as the fourth quarter approaches. Concerns now focus on negative free cash flow, rising debt, and whether these investments will ever generate sufficient returns.
Market anxiety spilled over on Friday. The Nasdaq fell 2.9%. Chip stocks also took a hit: Nvidia dropped 4%, Broadcom more than 5%, and Qualcomm 11%. Alphabet, which plummeted 12% on Thursday and wiped out $500 billion in market value, fell again.
A primary cause for concern is that companies with previously overflowing cash from their core businesses are now being hit by AI threats to those economics. Alphabet provided the clearest example this week. Google’s parent company reported negative free cash flow of $9.1 billion in the third quarter, its second consecutive quarter in the red, even as quarterly capex grew to $51.4 billion. Alphabet expects to spend up to $205 billion this year and anticipates that spending will keep rising in 2027.
Meanwhile, the success of AI Mode — Google’s AI-powered chatbot feature built directly into Search — is eating into the company’s money-maker. Google’s Search advertising business, which makes up roughly half of its revenue, saw growth slow to 12%, its weakest pace in five quarters. That leaves Google in a difficult position. It is spending billions on AI technology that could undermine the search business that pays it.
Amazon is in a similar boat after reporting negative free cash flow of $42.4 billion over the past 12 months, compared with $14.8 billion in positive free cash flow the year before. The company says it expects to spend $220 billion in capex this year. Even though revenue at its cloud business, AWS, grew 39%, Amazon’s stock tumbled 7% after it reported earnings Thursday.
Meta is also burning cash, reporting negative free cash flow of $2.1 billion in the third quarter as capex outpaced its operating cash. It is guiding to as much as $145 billion in capex this year. The company noted that Muse, its new free personal AI agent, is a bit of a money pit. CEO Mark Zuckerberg has said it is “very compute-intensive to run.” Ad revenue grew 26%. Still, no amount of good news saved Meta from taking a 10% hit on its stock last week.
Microsoft was the only exception regarding free cash flow. It recorded $18.6 billion in positive free cash flow in its latest quarter, with spending on capex at $45.2 billion, less than the $50 billion it projected. Microsoft said that was not an intentional pullback from AI spending, blaming delays in capacity from third-party providers. As a result, shares of smaller companies that rent out AI computing power sank.
The money to pay for all of this AI infrastructure is not just coming from the Big Tech companies’ profits. It is also showing up in stock and bond sales. According to S&P Global Market Intelligence, Microsoft, Alphabet, Amazon, Meta, and Oracle raised a combined $326 billion in debt in 2026, triple the amount raised last year.
Demand for AI compute remains strong. Google, Amazon, and Microsoft all saw gains in their cloud businesses. But investors are getting spooked by the costs of meeting that demand.
These muddied waters could complicate Anthropic’s highly anticipated IPO. The AI company filed to go public earlier this week, and its future growth depends on securing enormous amounts of compute. Financial Times reported Friday that Blackstone has warned investors the company might not qualify for an investment-grade rating after its IPO, meaning it might end up being more reliant on the hyperscalers and third-parties to fund its infrastructure ambitions.
