Investors are getting nervous about AI infrastructure spending just as the Big Tech companies double down.\u00a0<\/p>\n
Over the past two 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.\u00a0<\/p>\n
Earlier in the AI boom, investors largely rewarded such big outlays, viewing them as a sign of confidence in the technology\u2019s growth 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), mounting debt, and whether these enormous investments will ever generate enough returns.\u00a0<\/p>\n
The anxiety spilled across the market on Friday. The Nasdaq fell 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.<\/p>\n
A big part of the concern is that companies that used to have overflowing free cash flow from their core businesses are getting hit as AI threatens the economics of those businesses. Alphabet provided the clearest example <\/a>of that this week. Google\u2019s parent company reported negative free cash flow of $9.1 billion in the third quarter, its second consecutive quarter in the red, even as quarterly capex grew to $51.4 billion. Alphabet expects to spend up to $205 billion this year, and expects that spending to keep rising in 2027.<\/p>\n Meanwhile, the wild success of AI Mode \u2014 Google\u2019s AI-powered chatbot feature built directly into Search \u2014 is eating into the company\u2019s money-maker. Google\u2019s Search advertising business, which makes up roughly half of its revenue, saw growth slow to 12%, its weakest pace in five quarters.\u00a0That leaves Google walking a tightrope. It\u2019s spending billions on the AI technology that could undermine the search business that pays it.<\/p>\n Amazon is in a similar boat <\/a>after reporting negative free cash flow of $42.4 billion over the past 12 months, compared with $14.8 billion in positive free cash flow the year before. The company says it expects to spend $220 billion in capex this year. Even though revenue at its cloud business, AWS, grew 39%, Amazon\u2019s stock tumbled 7% after it reported earnings Thursday.\u00a0<\/p>\n Meta<\/a> is also burning cash, reporting negative free cash flow of $2.1 billion in the third quarter as capex outpaced its operating cash. It\u2019s guiding to as much as $145 billion in capex this year. The company noted that Muse, its new free personal AI agent, is a bit of a money pit (it\u2019s \u201cvery compute-intensive to run,\u201d CEO Mark Zuckerberg has said). But ad revenue grew 26%. Still, no amount of good news saved Meta from taking a 10% hit on its stock last week.\u00a0<\/p>\n Microsoft<\/a> was the only exception when it came to free cash flow \u2014 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\u2019t an intentional pullback from AI spending, blaming delays in capacity from third-party providers. As a result, shares of smaller companies that rent out AI computing power sank<\/a>.<\/p>\n It\u2019s worth noting that the money to pay for all of this AI infrastructure isn\u2019t just coming from the Big Tech companies\u2019 profits. It\u2019s also showing up in stock and bond sales. According to S&P Global Market Intelligence, Microsoft, Alphabet, Amazon, Meta, and Oracle raised a combined $326 billion<\/a> in debt in 2026, triple the amount raised last year. \u00a0<\/p>\n Demand for AI compute remains strong. Google, Amazon, and Microsoft all saw gains in their cloud businesses. But investors are getting spooked by the costs of meeting that demand.\u00a0<\/p>\n These muddied waters could complicate Anthropic\u2019s highly anticipated IPO. The AI company filed to go public earlier<\/a> this week, and its future growth depends on securing enormous amounts of compute. Financial Times reported<\/a> Friday that Blackstone has warned investors the company might not qualify for an investment-grade rating after its IPO, meaning it might end\u00a0up being more reliant on the hyperscalers and third-parties to fund its infrastructure ambitions.\u00a0<\/p>\n