Three of the world's most profitable companies recently endured a severe downturn in their financial results, not because their core businesses are failing, but due to the massive capital they are pouring into artificial intelligence. Alphabet, the parent company of Google, lost more than $500 billion in market value in a single day, while Meta and Amazon also saw their shares drop following their latest reports. The common thread linking these declines is the colossal sums being allocated to AI infrastructure.
For years, Big Tech firms were considered the safest market bets due to their ability to generate vast amounts of cash. While they continue to do so, the current race for AI dominance is consuming that liquidity, leading investors to question how long these companies can sustain such financing levels. According to Reuters, Alphabet, Microsoft, Amazon, and Meta are projected to spend well over $700 billion this year alone on data centers, chips, and networks.
Alphabet's latest quarterly report showed revenue rising 25% to $127.6 billion, with Google Cloud more than doubling its year-over-year performance to nearly $31 billion. Despite these figures, the company's stock fell nearly 13%, dropping its market value from $3.97 trillion to $3.46 trillion. Two primary factors explain this reaction: a slowdown in search advertising and negative free cash flow. Google Search ad revenue grew 12% year-over-year, missing Wall Street expectations of $83.4 billion against an actual $82 billion. Furthermore, Alphabet recorded a negative free cash flow of $9.1 billion, marking its second consecutive quarter of negative flow after decades of strong returns.
Google Commercial Director Philipp Schindler attributed the ad slowdown partly to increased usage of AI Mode, a chatbot-style search feature that Google is still attempting to monetize. Essentially, the AI technology being built appears to be weakening the very product funding it. Meanwhile, Meta's shares fell nearly 7% after reporting a negative free cash flow of $2.12 billion and raising its capital expenditure forecast for 2026 to between $135 billion and $145 billion. This has driven the cost of insuring Meta's debt against default to record highs, even as revenue grew 26% to $64.6 billion.
Amazon reported an 11% sales increase to $201 billion, yet its cash flow was also negative at $42 billion, causing shares to drop 6% in after-hours trading. CEO Andy Jassy defended the spending by highlighting Amazon's potential trillion-dollar businesses in internal chips and the Bedrock AI platform. He acknowledged that spreading these costs over 25 years would be more comfortable but noted that is not the current reality.
The cloud sector remains the only area where money is clearly returning for most of these giants, with Google Cloud's order book reaching $561 billion. However, market skepticism persists regarding whether today's capacity building will guarantee future demand. Alphabet has already stated its capital expenditure for 2027 will rise significantly from $195 billion to $205 billion. Microsoft stands out as the only company among the four to largely avoid this downturn, with revenue up nearly 20% to $92 billion and Azure growing 48%. The tech giant reported a positive free cash flow of $19.6 billion, exceeding forecasts by about $1 billion, leading to a stock increase of over 5% in after-hours trading before a slight correction the following day.
Sources: Xataka.