Big Tech spent $170B on AI in one quarter as cash flow turns negative

Amazon Amazon.com, Inc. ↗ 3.90%, Google Alphabet Inc. ↘ 0.62%, Meta ↘ 7.95%, and Microsoft ↗ 15.51% are projected to collectively invest $1.5 trillion in data centers and AI infrastructure over 2026 and 2027, according to Wall Street estimates compiled by FactSet ↘ 6.74%. The spending surge has prompted mounting concern among investors even as the companies insist demand far outstrips their capacity to deliver.nytimes

Record Quarterly Outlays

On Thursday, Amazon reported that its capital expenditures reached $53 billion in the second quarter, a 69 percent increase from the same period a year earlier. The company posted $200.6 billion in revenue, up 20 percent, with its cloud computing division generating $42.2 billion in sales, a 37 percent gain. Amazon's free cash flow, however, fell to negative $7.6 billion after accounting for its infrastructure investments.nytimes

The results cap a week of staggering disclosures. Meta reported a 55 percent rise in capital spending on Wednesday and raised the lower end of its full-year forecast to $130 billion. Microsoft held its spending projections steady while reporting Azure surpassed $100 billion in annual revenue for the first time. Google last week lifted its anticipated capital expenditures to as much as $205 billion, a $15 billion increase, and reported negative free cash flow for the first time since going public in 2004.businessinsider+1

From April through June, the four companies spent a combined $170 billion on capital expenditures, a 72 percent year-over-year increase.nytimes

Investor Anxiety and Mixed Signals

Markets delivered a split verdict. Microsoft's stock surged more than 15 percent Thursday after beating expectations without raising spending plans, while Meta's shares fell more than 7 percent after its disappointing sales forecast. Google's stock dropped more than 6 percent after its negative cash flow disclosure.nytimes

"The scale of it is incredible," said Melissa Otto, who directs research at S&P Global's ↘ 1.11% Visible Alpha division. Moody's warned that heavy reliance on AI startups like OpenAI and Anthropic for computing contracts creates "a more circular system that could obscure actual demand".nytimes

Capacity Race Meets Slower Progress

Despite the spending, executives say computing supply remains insufficient. "More capacity equals more sales," Bank of America ↗ 1.08% analyst Justin Post wrote in a research note. Mark Zuckerberg told investors Wednesday that "it would be foolish to basically just sell all of the compute and take a short-term profit".businessinsider+1

Yet internal doubts have surfaced. At a July 2 town hall, Zuckerberg told employees that "the trajectory of the agentic development over at least the last four months hasn't really accelerated in the way that we expected," according to a recording heard by Reuters.reuters+1