Big Tech Free Cash Flow Plummets Amid AI Spending

Major technology companies are seeing significant declines or negative free cash flow as they accelerate capital expenditures for artificial intelligence infrastructure. In the June quarter, Alphabet Inc. and Amazon.com Inc. both reported negative free cash flow, with year-over-year drops of 210% and 770% respectively. Meta Platforms Incorporated saw its free cash flow contract by 91%, while Microsoft Corporation experienced a 23% decline, though it remained positive at nearly $20 billion.

To fund these investments, companies are turning to debt and equity markets. Alphabet is selling $85 billion in equity and planning a $25 billion bond sale, while Meta and Amazon have also tapped debt markets. Despite the drop in free cash flow, operating cash flows for all four firms continue to grow, with Alphabet and Amazon increasing by approximately 40%, Microsoft by 30%, and Meta by nearly 25%.

Amazon CEO Andy Jassy defended the spending by distinguishing between short-term chip investments, which typically break even in under three years, and long-term data center construction. Jassy noted that once these centers are operational, they can be monetized for over 30 years without requiring additional startup capital.