The AI arms race just got a price tag that's making Wall Street nervous. Alphabet, Microsoft, Meta and Amazon are projected to blow nearly $700 billion this year on AI infrastructure - a 60% jump from 2025's already historic levels. But there's a catch that's sending shockwaves through investor circles: free cash flow is about to take a nosedive, with some companies staring down negative territory for the first time in years.
Wall Street's love affair with tech's cash-generating machines just hit a major speed bump. As earnings season wraps up, the numbers tell a sobering story about what it really costs to win the AI race - and investors aren't sure they like the answer.
Amazon dropped the biggest bombshell Thursday, announcing plans to spend $200 billion this year on AI infrastructure. Morgan Stanley analysts now project the e-commerce giant will burn through $17 billion in negative free cash flow in 2026, while Bank of America sees a deficit hitting $28 billion. In a quiet SEC filing Friday, Amazon signaled it may tap equity and debt markets to fuel the buildout. The stock immediately sank 6%, extending its 2026 losses to 9%.
But Amazon's not alone in the spending frenzy. Alphabet is projecting up to $185 billion in capex this year, with Morgan Stanley managing director Brian Nowak telling CNBC's Power Lunch he expects that figure to balloon to $250 billion by 2027. Pivotal Research projects Alphabet's free cash flow will crater 90% to just $8.2 billion from $73.3 billion in 2025. The company already held a $25 billion bond sale in November, and its long-term debt quadrupled last year to $46.5 billion.
Meta might be facing the most dramatic shift. Barclays analysts are now modeling negative free cash flow for 2027 and 2028 after the social media giant announced capex could reach $135 billion this year. "We are now modeling negative FCF for '27 and '28, which is somewhat shocking to us but likely what we eventually see for all companies in the AI infrastructure arms race," the analysts wrote. When CFO Susan Li fielded questions about capital allocation on the earnings call, her message was clear: "The highest order priority is investing our resources to position ourselves as a leader in AI."
