Palihapitiya estimates that the broader AI industry already owes roughly $340 billion to $400 billion to capital markets. <\/p>\n
Even if demand for AI is still high, that is significant. <\/p>\n
Big Tech is returning less to shareholders while investing more in infrastructure. Investors may need to pay considerably more attention to borrowing costs and free cash flow. <\/p>\n
The quest to develop the greatest technology is no longer the main focus of the AI race. The issue of financing has taken over. <\/p>\n
Big Tech’s AI spending is eating into cash returns <\/p>\n
Microsoft, Alphabet, Amazon, Meta and Oracle generated a combined $542.9 billion in operating cash flow during the first nine months of 2026, according to Reuters<\/a>. <\/p>\n Their capital spending doubled, reaching $556.9 billion, exceeding the cash flow the five firms generated for the first time, according to data going back to 2011. <\/p>\n Shareholders are already feeling the squeeze. <\/p>\n The group’s total stock buybacks dropped 83% to $13.6 billion. Microsoft accounted for the majority of the remaining buybacks at that time, while Alphabet and Meta did not make any repurchases. <\/p>\n This eliminates a long-standing financial windfall for investors. By lowering the number of outstanding shares, repurchases enable earnings per share to increase more quickly than overall profits. <\/p>\n “The entire United States economy is levered to the AI complex,” Palihapitiya<\/a> said. <\/p>\n AI is not necessarily a bad investment because of the enormous expenditure. In the end, stockholders may benefit if new infrastructure generates sufficient income and profit. <\/p>\n However, the barrier is becoming higher. <\/p>\n Reuters<\/a> found the five companies swung from $143.5 billion of free cash flow a year earlier to a $14 billion deficit during the first nine months of 2026. <\/p>\n In exchange for possibly higher AI earnings in the future, investors are giving up some cash returns today. <\/p>\n Meta serves as an example of how soon investing on AI may put strain on even a solid balance sheet. <\/p>\n S&P Global Ratings changed<\/a> Meta’s credit outlook to negative on Oct. 30, citing rapidly increasing capital spending and uncertainty around future free operating cash flow. <\/p>\n Meta<\/a> expects capital expenditures of $135 billion to $145 billion this year. S&P forecasts free operating cash flow deficits of $39 billion in 2026 and $71 billion in 2027 and expects the company could eventually use more debt to finance expansion. <\/p>\n Meta disagreed with S&P’s evaluation and highlighted the commercial prospects brought forth by AI. <\/p>\n That encapsulates the main tension. <\/p>\n Whether Meta can afford its present buildout is not the issue. It is able to. How soon such investments begin to produce enough revenue to cover the expenditures is the issue. <\/p>\n More Artificial Intelligence: <\/p>\n What happens when more AI businesses borrow is Palihapitiya’s wider worry. <\/p>\n According to his projections, their funding requirements until the end of 2027 may account for almost 30% of the anticipated issuance of new U.S. Treasury notes and bonds during that time. <\/p>\n The exact proportion should be interpreted with caution since it is Palihapitiya’s estimate rather than an official government measurement. <\/p>\n However, the idea is simple. <\/p>\n Many of the same investors provide funding to both corporations and the federal government. To attract capital, corporations may need to provide higher returns due to increased corporate borrowing. <\/p>\n This increases the required return on AI investments. <\/p>\n Microsoft shows what AI investors need to watch <\/p>\n Microsoft provides an example of why the bearish case is still unresolved. <\/p>\n The most recent quarter growth of Microsoft’s Azure<\/a> of 48% indicates that the massive infrastructure buildout is supporting significant demand. <\/p>\n Investors in Big Tech must see AI-related revenue and profit growth that is fast enough to support the money going into processors, data centers, and electricity. <\/p>\n The most obvious test could be free cash flow. <\/p>\n The strain on balance sheets and shareholder returns could lessen if Microsoft, Meta, Alphabet, and Amazon finally make money from AI more quickly than capital expenditure increases. <\/p>\n Palihapitiya’s reasoning is more difficult to reject if expenditure keeps rising while debt rises and free cash flow declines. <\/p>\n Buybacks also provide another helpful hint. A steady increase in repurchases combined with ongoing AI investment would indicate that these businesses are once again making much more money than they need to finance growth. <\/p>\n Palihapitiya’s reasoning differs from prior warnings about an AI bubble because of this. <\/p>\n The financial equation does not need to collapse for AI to become more challenging. <\/p>\n It only has to become much more expensive to fund. <\/p>\n Related: Microsoft is offering 60,000 employees a way out<\/a> <\/p>\n This story was originally published by TheStreet<\/a> on Nov 2, 2026, where it first appeared in the Investing<\/a> section. Add TheStreet as a Preferred Source by clicking here.<\/a> <\/p>\n","protected":false},"excerpt":{"rendered":"The largest IT businesses in America have the money to accomplish almost everything at once for many years.…\n","protected":false},"author":2,"featured_media":672931,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[20],"tags":[4818,220,218,219,72,122,113,176,1941,61,1831,31173,1942,60,1407,12455,12883,174,13047,9115,1611,4755,1943,1944,131,31174,5066,80,31175],"class_list":["post-672930","post","type-post","status-publish","format-standard","has-post-thumbnail","category-artificial-intelligence","tag-401k","tag-ai","tag-artificial-intelligence","tag-artificialintelligence","tag-business","tag-business-news","tag-economy","tag-finance","tag-financial-information","tag-ie","tag-investing","tag-investment-tools","tag-investor","tag-ireland","tag-market-news","tag-mortgage","tag-mutual-funds","tag-personal-finance","tag-quote","tag-real-estate","tag-retirement","tag-stock","tag-stock-research","tag-stock-valuation","tag-stocks","tag-suze-orman","tag-tax","tag-technology","tag-track-portfolio"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/672930","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/comments?post=672930"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/672930\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media\/672931"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media?parent=672930"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/categories?post=672930"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/tags?post=672930"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}<\/a> Chamath warns AI spending is creating a new Wall Street riskFinn Gomez \/ Getty Images Meta shows how the AI equation can change <\/p>\n