Investors are getting nervous about AI infrastructure spending just because the Big Tech companies double down.
Over the past 2-weeks, Alphabet, Amazon, Meta, and Microsoft have outlined plans to spend more than $740 billion on capital expenditures this year, which Wall Street is reading as AI infrastructure spending, including data centers and chips.
Earlier within the AI boom, investors mostly rewarded such huge outlays, seeing them as a sign of self of confidence within the technology’s development potential. But as we enter the fourth quarter, that enthusiasm seems to be giving way to concerns about negative free cash flow (spending more cash than a company brings in), rising debt, and whether these enormous investments will ever generate sufficient returns.
The anxiety spilled across the market on Friday. The Nasdaq dropped 2.9%, and chip stocks took a drubbing, too: Nvidia dropped 4%, Broadcom more than 5%, and Qualcomm 11%. Alphabet, which plummeted 12% on Thursday, its worst day on record, wiping out $500 billion in market value, fell again.
A massive part of the concern is that companies that used to have surging free coins flow from their core businesses are getting hit as AI threatens the economics of those businesses. Alphabet provided the clearest example of that this week. Google’s parent company report negative free cash flow of $9.1 billion in the third quarter, its second consecutive quarter in the red, whilst quarterly capex scale up to $51.4 billion. Alphabet anticipates to spend as much as $205 billion this year, and anticipates that spending to keep rising in 2027.
Meanwhile, the wild 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 around half of its revenue, saw growth slow to 12%, its weakest pace in 5 quarters. That leaves Google walking a tightrope. It’s spending billions on the AI technology that could undermine the search business enterprise that pay it.
Amazon is in a similar boat after reporting negative free cash cash of $42.4 billion over the last 12 months, as compared with $14.8 billion in positive free cash flow the year before. The company says it anticipates to spend $220 billion in capex this year. Even though revenue at its cloud business, AWS, scale up 39%, Amazon’s stock tumbled 7% after it reported reported Thursday.
Meta is also burning cash, reporting free cash flow of $2.1 billion in the third quarter as capex outpaced its operating cash. It’s guiding to as much as $145 billion in capex this year. The company referred to that Muse, its new free personal AI agent, is a bit of a money pit (it’s “very compute-intensive to run,” CEO Mark Zuckerberg has said). But ad revenue scale up to 26%. Still, no amount of good news saved Meta from taking a 10% hit on its stock last week.
Microsoft was the only exception when it came to 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 wasn’t an intentional pullback from AI spending, blaming delays in capacity from third-party providers. As a end result, shares of smaller companies that rent out AI computing power sank.
It’s worth noting that the money to pay for all of this AI infrastructure isn’t simply coming from the Big Tech companies’ profits. It’s also displaying up in inventory and bond sales. As per S&P Global Market Intelligence, Microsoft, Alphabet, Amazon, Meta, and Oracle raised a integrated $326 billion in debt in 2026, triple the amount raised last year.
Demand for AI compute stays strong. Google, Amazon, and Microsoft all saw gains in their cloud businesses. But investors are getting spooked via the costs of meeting that demand.
These muddied waters could complicate Anthropic’s particularly anticipated IPO. The AI company filed to go filed to go public earlier this week, and its future development relies upon on securing enormous amounts of compute. Financial Times reported Friday that Blackstone has warned investors the company might not for an investment-grade rating its IPO, which means end up being more reliant at the hyperscalers and third-parties to fund its infrastructure ambitions.
