Meta, Amazon, Alphabet Burn Cash on AI Buildout as Core Units Slow

Big technology companies are funding their artificial intelligence infrastructure plans by draining cash from their established businesses, a strategy that is now showing strain in quarterly reports. Meta, Amazon, and Alphabet each posted negative free cash flow this quarter, while Microsoft remained positive but saw cash generation drop 27% to $18.63 billion. Microsoft has said it will turn to the bond market to fund further data center spending.

The cash outflows are substantial. Amazon reported negative free cash flow of $42.4 billion, Alphabet reported $9.07 billion, and Meta reported $2.12 billion. Amazon expects capital expenditures to reach $220 billion this year, with analysts projecting that figure will exceed $280 billion next year. Meta plans to spend as much as $145 billion on data centers and computing gear this year, and analysts project costs will pass $210 billion in 2027. To support its spending, Meta announced plans to raise $95 billion through stock sales.

Revenue growth in some legacy operations is slowing. Amazon's online sales rose 2% year over year, down from 10% growth a year prior, and its revenue guidance midpoint came in below the $244.5 billion analysts expected for the holiday quarter. Alphabet's search business recorded a third consecutive quarter of slowing growth and missed projections, while YouTube advertising revenue also came in light.

Mark Mahaney, an analyst at Evercore, said Google's cloud revenue performance was "good news" for the company, but added that its decelerating digital advertising business represented "the overwhelming bad news." Forrester analyst Tracy Woo wrote in an email that "Alphabet's massive capex investment in infrastructure buildout has been tolerated for now," but added that the company "is walking a fine line" due to the advertising misses.

Investor reaction has been sharp. Alphabet shares suffered their steepest single-day drop on Thursday, and Meta shares fell 7% after its earnings report last week despite beating revenue expectations. Amazon shares declined in extended trading following its results.

Some investors remain supportive. Christopher Ballard, a managing director at Check Capital Management, noted that Alphabet's $9 billion negative free cash flow is small compared with its quarterly operating income, which exceeded $40 billion. "They're borrowing from the for-now in order to invest in the future," Ballard said. "I think it's OK, and they're doing it in a responsible manner."

Amazon CEO Andy Jassy addressed the pace of spending on Thursday's earnings call. "Would it be more convenient if this type of acceleration and opportunity happened over 25 years, and you can spread the capex over 25 years?" Jassy said. "Yeah, it might be more convenient, but that's not the world that we live in, and that's not the opportunity."