Big Tech AI spending puts Microsoft, Meta and Amazon under cash-flow glare
Alphabet and Tesla fell after AI spending alarms, and analysts now see cash-flow pressure at Microsoft, Meta and Amazon.
By Frankie Delgado · News Reporter
3 min read
Big Tech AI spending is about to get another market test as Microsoft, Amazon, Apple and Meta report earnings this week, with investors watching whether the AI buildout is eating into cash generation.
MarketWatch columnist Michael Kramer wrote that Alphabet and Tesla were punished by investors last week after quarterly reports showed heavier capital spending and weaker free cash flow. Kramer said the same pressure could become a problem for other megacap technology names, especially those funding large AI infrastructure projects.
Apple stands apart in his analysis. Kramer said Apple has kept capital spending comparatively tight, while Microsoft, Amazon, Meta, Alphabet and Tesla have seen spending climb as they chase AI-related growth.
Why is Big Tech AI spending worrying investors?
Free cash flow is the money a company has left after paying for operations and capital investments. When capital expenditures rise faster than cash generation, a company may need to borrow, issue stock or slow its spending plans.
Kramer wrote that credit markets are already showing nerves. He pointed to widening credit default swap spreads for several large technology companies, a sign he said may indicate bond investors want more protection as debt issuance rises and business models become more capital-intensive.
Credit default swaps are contracts used to insure against a borrower failing to repay debt. Wider spreads generally suggest investors see higher risk or want greater compensation for taking it.
Consensus estimates cited by Kramer show the scale of the spending wave. Over the next 12 months, Apple’s capital expenditures are expected to be about $13.4 billion, compared with nearly $22 billion for Tesla, $142 billion for Meta, almost $180 billion for Microsoft, $216 billion for Amazon and nearly $252 billion for Alphabet.
The quarterly comparisons are just as sharp. Alphabet reported second-quarter capital expenditures of $44.9 billion, up from $22.5 billion a year earlier. Analysts expect Amazon’s quarterly spending to rise to $48.2 billion from $32.2 billion, Microsoft’s to $35.1 billion from $17.8 billion and Meta’s to $33.7 billion from $17.6 billion. Apple is expected to spend about $3.4 billion, up from $2.5 billion.
What are analysts expecting for free cash flow?
Kramer said analysts expect cash flow to remain under strain at most of the AI spenders. Alphabet already reported negative free cash flow of $5.9 billion for the second quarter, compared with positive free cash flow of $5.3 billion a year earlier.
Microsoft is expected to report free cash flow of $17.4 billion, down from $25.6 billion a year earlier, according to the estimates cited by Kramer. Meta is forecast at negative $178.4 million, compared with positive $9 billion a year ago. Amazon is expected to fall to negative $3.8 billion from positive $332 million.
Apple is again the outlier. Analysts expect its free cash flow to increase to $30.1 billion from $24.4 billion, which Kramer tied to its more measured AI-related spending.
Could chip stocks feel the squeeze?
Kramer warned that the risk may not stop with the largest cloud and platform companies. If Microsoft, Amazon, Meta, Alphabet or other hyperscalers slow capital spending because financing costs rise or free cash flow weakens, demand could eventually soften for semiconductor suppliers tied to AI hardware.
He named Nvidia, Broadcom and AMD as companies exposed to hyperscaler spending, while noting that widening credit default swap spreads for those chip companies are surprising because they continue to produce strong and rising free cash flow.
Kramer disclosed that he is the founder of Mott Capital Management and that he and Mott clients own Apple, Microsoft, Amazon and Alphabet shares.
This story draws on original reporting from MarketWatch.