Hyperscalers’ Free Cash Flow Dips as AI Arms Race Hits Balance Sheets

The full-year free cash flow at Amazon, Alphabet, Meta, and Microsoft is set to fall to its lowest level since 2014.

The decline reflects mounting pressure from heavy investments in artificial intelligence (AI).

AI Spending Spree Pulls Big Tech Cash Flow Down

According to recent estimates from Morgan Stanley, hyperscalers including Amazon, Alphabet, Meta, Microsoft, and Oracle could spend nearly $805 billion this year, up from an earlier projection of $765 billion. Forecasts for next year have also been raised sharply to $1.1 trillion.

“To put that into perspective, their 2026 spending alone would be roughly equal to what all non-tech companies in the S&P 500 spent combined in 2025. The expected ~$800bn for 2026 is nearly double the 2025 levels and about three times what was spent in 2024,” reporter Holger Zschaepitz posted.

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The aggressive push into AI is leaving these tech giants with significantly less cash. Wall Street forecasts show the combined free cash flow of Amazon, Alphabet, Microsoft, and Meta could drop to around $4 billion in the third quarter. This marks a dip from the quarterly average of $45 billion since the COVID-19 pandemic.

“Their full-year free cash flow is set to hit the lowest level since 2014, when their revenues were about a seventh of their current size, according to analysts’ estimates compiled by Visible Alpha,” the Financial Times reported.

The report noted that Amazon is projected to spend more cash than it generates this year. Visible Alpha estimates point to a roughly $10 billion cash burn.

The company has also announced plans to invest $200 billion in 2026, marking the largest spending commitment among its peers.

Meta is also expected to “burn cash” in the second half of the year. Over the past six months, the firm has issued $55 billion in debt and halted share buybacks. 

Meanwhile, analysts expect Alphabet to remain free cash flow positive for the full year, though at its weakest level in more than a decade. The company also refrained from repurchasing shares in the first quarter for the first time since initiating its buyback program in 2015.

“After largely funding their investments from their income for the first few years of the AI boom, these tech giants face trade-offs more familiar to capital-intensive businesses: cutting jobs, reducing shareholder returns or borrowing to fund the build-out,” the report added.

Still, analysts view the pressure on cash flow as temporary. They expect that rising AI-driven revenue will improve cash generation next year.

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