Tech AI spending approaches $700 billion in 2026, cash taking big hit

Alphabet, Microsoft, Meta and Amazon are expected to spend nearly $700 billion combined this year to fuel their AI build-outs.

For investors who love cash above all else, some warning signs may be flashing.

With the heart of tech earnings season wrapping up this week, Wall Street has a clearer picture of how the artificial intelligence race is poised to accelerate in 2026. The four hyperscalers are now projected to increase capital expenditures by more than 60% from the historic levels reached in 2025, as they load up on high-priced chips, build new mammoth facilities and buy the networking technology to connect it all.

Getting to those kinds of numbers is going to require sacrifice in the form of free cash flow. Last year, the four biggest U.S. internet companies generated a combined $200 billion in free cash flow, down from $237 billion in 2024.

The more dramatic drop appears to be ahead, as companies invest heavily up front, promising future returns on investment. That means margin pressures, less cash generation in the near term and the potential need to further tap the equity and debt markets. Alphabet held a $25 billion bond sale in November, and its long-term debt quadrupled in 2025 to $46.5 billion.

Amazon, which on Thursday said it expects to spend $200 billion this year, is now looking at negative free cash flow of almost $17 billion in 2026, according to analysts at Morgan Stanley, while Bank of America analysts see a deficit of $28 billion. In a filing with the SEC on Friday, Amazon let investors know that it may seek to raise equity and debt as its build-out continues.

Despite beating on revenue for the quarter, Amazon saw its stock sink almost 6% on Friday, bringing its drop for the year to 9%. Microsoft is down 17%, the most in the group, while Alphabet and Meta are up slightly.

While Amazon laid out the most aggressive spending plan among the megacaps, Alphabet wasn’t far behind. The company, which is investing in its cloud infrastructure business as well as its Gemini models, sees up to $185 billion in capex this year. Morgan Stanley managing director Brian Nowak told CNBC’s “Power Lunch” that he’s projecting even more spend in coming years, with Alphabet shelling out up to $250 billion in 2027.

Pivotal Research projects Alphabet’s free cash flow to plummet almost 90% this year to $8.2 billion from $73.3 billion in 2025. Analysts at Mizuho wrote in a report that bearish investors may look at the potential doubling of capex this year as “leaving limited FCF in 2026 with uncertain” return on investment.

Still, the analysts remain bullish and all kept their buy recommendations on the respective stocks. Longbow Asset Management CEO Jake Dollarhide is right there with them. He counts Amazon as the biggest holding in his portfolio, followed by Alphabet at fourth and Microsoft ninth.

“If you’re going to pour all this money into AI, it’s going to reduce…