Bank of America Projects Hyperscaler Spending to Hit $1.2 Trillion

Analysts at Bank of America raised their outlook for hyperscaler capital spending, projecting expenditures will reach approximately $860 billion in 2026 and nearly $1.2 trillion by 2027. This spending surge, driven by accelerating demand for AI infrastructure, is significantly impacting the free cash flow of major cloud providers.

Alphabet Inc. reported negative free cash flow in the second quarter for the first time since its 2004 public offering, and Amazon.com saw its trailing 12-month free cash flow turn negative. Meta Platforms Incorporated reported barely positive quarterly free cash flow, while Microsoft maintained firmly positive levels.

Bank of America forecasts that aggregate free cash flow across eight major companies, including U.S. hyperscalers and China's Alibaba, Tencent, and Baidu, will swing from an estimated $180 billion in 2025 to negative $64 billion in 2026, potentially declining further to negative $186 billion by 2028. Despite the cash flow pressure, analysts highlight strong revenue growth, citing Alphabet's 82% year-on-year cloud division growth and a combined customer backlog of roughly $2.3 trillion.