Some of the wealthiest companies in global history are investing huge sums of money in the infrastructure that supports AI. They are burning through billions of dollars in cash and, at a time when Wall Street is shaky, they are also threatening the recent stock market gains driven by AI.

The latest financial disclosures from Amazon, Alphabet, Microsoft, and Meta – the four largest hyperscale cloud service providers – as well as Elon Musk’s emerging AI company SpaceX (which includes xAI) show that this small group of tech giants plans to invest a total of up to $828 billion in capital expenditures this year. The related expenses include data centers, high-performance chips, and other infrastructure necessary to support the operation of AI.

According to the company's financial reports and conference calls, of these $828 billion in capital expenditures, Amazon expects to spend $220 billion in 2026, Alphabet up to $205 billion, Microsoft about $170 billion, Meta up to $145 billion, and SpaceX up to $88 billion.

So far, this massive AI infrastructure bill has exceeded the market value of well-known companies such as ExxonMobil, and is even close to the approximately $1 trillion in defense spending for this fiscal year in the United States, which is already the highest in the world. Several banks, including Evercore and Bank of America, believe that capital expenditures related to AI will reach $1 trillion by 2027.

Affected by this substantial expenditure, the stock market tumbled significantly on Friday, with both NASDAQ and the S&P 500 recording their worst single-day performances since June. NASDAQ, which has a higher weight of technology stocks, fell by 2.9%, while the S&P 500 declined by 1.8%. The market value of the NASDAQ 100 index components evaporated by over $1 trillion. Weak guidance provided by American chip manufacturer Intel for the last three months of the year also contributed to the decline.

Part of the market's unease stems from concerns about free cash flow. Free cash flow has long been a strength for Silicon Valley companies, but recent changes have occurred. Among the five tech giants, four had negative free cash flows in the third quarter, with Microsoft being the exception. This means that their expenditures on construction, equipment, and other capital investments exceeded the cash generated from operating activities.

As more and more companies that have accumulated wealth through software and services invest in physical infrastructure, they are in some cases seeking loans or financing to cover these expenses. Since a few tech stocks hold a disproportionate weight within the S&P 500, the success or failure of these companies' investments could have a significant impact on the market and millions of Americans who hold U.S. stocks.

An economist and assistant dean at Boston College, Aleksandar Tomic, warns that if these infrastructure investments fail to meet expectations, especially as companies increasingly rely on debt to finance their expansion, the consequences could be far-reaching beyond Silicon Valley. Increased borrowing may raise the capital costs for other businesses, while the decline of tech giants could affect the broader economy.

Tomic to Fortune says: 'If these tech companies sneeze, the rest of the market will get pneumonia.'

A costly bet

Microsoft's latest financial report shows how the race to catch up with AI is affecting the overall decision-making of tech companies.

For decades, this software giant has been one of the companies most capable of generating cash on a global scale. In its latest fiscal year, it reported profits of nearly $134 billion, with nearly $183 billion in cash generated from operating activities. Nevertheless, during the same period, its cash expenditures for property and equipment still increased by about 80%.

Microsoft announced on Thursday the issuance of $25 billion in bonds, its first bond issue in over nine years. The company stated that the funds will be used for general corporate purposes, which may include capital expenditures.

Unlike its competitors Amazon, Alphabet, Meta, and SpaceX, Microsoft still maintained a positive free cash flow last quarter. However, with rising infrastructure costs, the company is also seeking financing.

Meta had a negative free cash flow of $2.1 billion last quarter, compared to a positive $10.6 billion in the same period last year. On Monday, the company announced that it would issue new shares, planning to raise up to $95 billion to provide additional funding for AI infrastructure, among other things.

Oracle, another important participant in the AI infrastructure competition, is also relying on borrowing and other channels to support its expansion. The company told investors this week that it expects to return to positive free cash flow only in the second half of the next fiscal year, which begins six months before May 2028. Thereafter, the company expects free cash flow to rise to at least $30 billion by the end of the fiscal year in May 2029.

AI Report

Currently, some large technology companies are showing encouraging signs: customers are paying unprecedented high prices for computing power. Google Cloud's revenue more than doubled last quarter, Microsoft's Azure business grew by 48%, and Amazon Web Services AWS grew by about 39%.

Cloud service providers make money by renting out computing power to AI providers. As the demand for AI is also expected to continue to grow in the coming years, these businesses may become a popular source of revenue for ultra-large-scale cloud service providers. However, not all cloud revenue comes from AI, and sales growth does not necessarily prove that these current substantial investments are justified.

Another positive development for the AI industry is that Claude developer Anthropic submitted its initial public offering (IPO) documents this week, which helped NASDAQ rise by 0.8% on Monday. These documents also drew market attention to future minimum procurement commitments of over $265 billion, most of which are related to cloud computing and other infrastructure services, which could benefit large-scale cloud service providers.

However, overall, these companies are investing huge amounts of capital today to build the computing power they expect to need in a few years. This move may be prescient, but it also comes with significant risks in the short term.

For investors, the question is increasingly focusing on whether AI will become profitable enough to justify such a substantial expense. Tomic indicates that if the expensive data centers and chips fail to generate the profits expected by the company, the consequences could extend beyond Silicon Valley, affecting the U.S. economy and even a broader range of regions.

He said, "We indeed need infrastructure, we indeed need this capital, but can it be sustained? I think that is the biggest, the biggest question."

Amazon CEO Andy Jassy stated that the company reported a negative free cash flow of over $42 billion for the past year on Thursday. During the company's third-quarter financial report conference call, he made it clear that there was little choice but to continue spending.

Jiaxi said to an analyst during a teleconference, "If this acceleration and opportunity could come gradually over 25 years, and you could spread the capital expenditures over those 25 years, wouldn't that be more convenient? Yes, it might be more convenient, but that's not the world we live in, nor is that what this opportunity looks like."