Big Tech capex worries rattle markets as AI spending surges

Big Tech’s spending spree on artificial intelligence is starting to spook investors. Alphabet, Amazon, Meta and Microsoft have committed to a combined total exceeding $740 billion in capital expenditures this year, money Wall Street views largely as outlays for data centers and chips. That confidence cracked on Friday, when the Nasdaq fell 2.9% and chip stocks sold off hard: Nvidia lost 4%, Broadcom fell more than 5%, and Qualcomm slid 11%. Alphabet, which had already plunged 12% on Thursday — its worst trading day ever, a $500 billion loss in market value — slid again.

The core worry: companies that once generated ample free cash from their main businesses are now bleeding it as AI competes with those same businesses. Alphabet is the starkest case. Google’s parent posted a $9.1 billion negative free cash flow for the third quarter — a second straight quarter in the red — even as quarterly capex climbed to $51.4 billion. Alphabet puts this year’s total spending at up to $205 billion, with further increases expected in 2027. Complicating matters, Google’s AI Mode search-chatbot feature has proven so popular it is cutting into the company’s biggest moneymaker: Search advertising, which makes up roughly half of Alphabet’s revenue, grew just 12% in the quarter, its slowest pace in five quarters — leaving Google pouring billions into the AI technology that could undermine the ad business funding it.

Amazon and Meta show the same pattern. Amazon burned a net $42.4 billion in free cash flow over the past 12 months — a reversal from $14.8 billion of positive free cash flow a year earlier — while planning $220 billion in capex this year; its stock fell 7% after Thursday’s earnings despite 39% growth at its AWS cloud unit. Meta posted a $2.1 billion negative free cash flow in the quarter, and its own capex guidance climbs to as much as $145 billion this year, partly to cover Muse, a new free personal AI agent that CEO Mark Zuckerberg has called “very compute-intensive to run”; Meta’s stock still took a 10% hit last week even as ad revenue grew 26%. Microsoft was the exception, posting $18.6 billion in positive free cash flow and capex of $45.2 billion — below its own $50 billion projection, which it attributed to delays in third-party capacity rather than a deliberate pullback; shares of smaller firms that rent out AI computing power fell in response. Microsoft, Alphabet, Amazon, Meta and Oracle have together raised $326 billion in debt this year — three times the amount raised last year — as some of the AI buildout is funded by borrowing rather than cash on hand, according to S&P Global Market Intelligence.

Why it matters

The jitters could complicate Anthropic’s own closely watched IPO. The lab’s future hinges on locking down enormous amounts of computing capacity, and the Financial Times reported Friday that Blackstone has warned investors Anthropic might not qualify for an investment-grade credit rating once it goes public — a shortfall that could leave the AI lab more dependent on hyperscalers and outside lenders to finance its compute buildout.