For the past few years, artificial intelligence (AI) has been one of the hottest themes in the stock market. Investors rewarded companies that talked boldly about AI ambition, data leadership, cloud scale and long-term disruption. But this earnings season, more than the headline earnings beat/miss, it was the heavy capital expenditure plans of the companies that took center stage.
Amazon AMZN, Alphabet GOOGL, Microsoft MSFT and Meta Platforms META are now committing to an unprecedented surge in AI-related spending, mostly tied to data centers, GPUs and cloud infrastructure. While this spending reflects confidence in long-term AI demand, it has also triggered growing investor unease. The question is whether these massive upfront investments can translate into stronger and sustainable earnings—or whether they lead to years of margin pressure, weaker free cash flow (FCF) and heavier reliance on equity and debt markets.
Combined, these four biggies are expected to spend more than $650 billion on AI-focused capex this year — one of the largest single-year investment ramps the technology sector has ever seen.
Per CNBC, these four tech giants generated $200 billion in FCF last year, down from $237 billion in 2024. A sharper drop is expected this year.
AI infrastructure requires heavy spending upfront, while monetization often comes later. That gap means near-term pressure on margins and cash generation. In some cases, analysts now expect FCF to turn negative — and that’s a big concern for these companies, long viewed as cash machines.
Let’s see how each member of the Mag 7— AMZN, GOOGL, MSFT, META, Tesla TSLA, Apple AAPL and NVIDIA NVDA fits into the picture.
Alphabet spent roughly $14 billion on capex in the fourth quarter of 2025, and management has guided $175-$185 billion in capital spending in 2026, nearly double the amount spent in 2025.
This spending is heavily focused on AI compute, data centers and cloud infrastructure as Alphabet tries to strengthen Google Cloud and position itself as a leader in enterprise AI services. Management made it clear that infrastructure spending is expected to stay high beyond 2026.
The concern is financial strain. Alphabet completed a $25 billion bond sale in November, and its long-term debt increased fourfold to $46.5 billion last year. It followed up with another $20 billion bond sale this week, underscoring how capital-intensive the AI push has gotten. While the company still holds nearly $100 billion in cash, investors are questioning how long this elevated spending can continue before AI monetization offsets the cost.
Amazon plans to spend about $200 billion on capex in 2026, a 53% increase from last year and the largest investment program in its history. Most of the money is going into AWS data centers, AI infrastructure, and in-house chips, with smaller allocations to robotics and satellite projects.
The company wants to meet the massive demand for cloud and AI services. But the financial impact is harder to ignore.
Analysts at Morgan Stanley and Bank of America now expect Amazon’s free cash flow to turn negative this year. In a recent SEC filing, Amazon indicated it may raise equity or debt as the buildout continues.
That’s a notable shift for a company once prized for its cash generation. The long-term opportunity in AWS is large, but near-term financial pressure is intensifying.
Meta is pivoting aggressively. After years of heavy spending on the metaverse, the company is now directing capital toward AI infrastructure and what it calls “superintelligence.”
For 2026, Meta expects capex of $115-$135 billion, nearly double the 2025 level. The focus is on data centers, AI hardware, large language models, and AI-powered products like smart glasses and video platforms, while virtual reality investments take a back seat.
The cash flow impact will be significant. Analysts at Barclays now forecast a nearly 90% fall in Meta’s FCF, and are modeling negative FCF in 2027 and 2028. While Meta’s core ad business remains strong, will investors be able to look past near-term financial pressure in exchange for long-term AI upside?
Microsoft spent roughly $72 billion on capex in the first half of fiscal 2026— driven largely by GPUs and CPUs to support Azure and AI workloads— with an annualized run rate pointing to more than $140 billion for the year.
While demand remains strong, Azure growth has slowed modestly, and gross margins have taken a hit due to AI investments.
Barclays estimates Microsoft’s FCF to fall 28% this year, before rebounding in 2027. Compared with peers facing deeper or prolonged cash flow strain, Microsoft’s AI push looks more financially contained — though the trade-off between growth and cash generation is becoming increasingly visible.
Apple stands apart. Its 2025 capex was around $13 billion, far below its peers. Instead of building massive AI infrastructure internally, Apple is leveraging partnerships — including Google’s Gemini — to power Apple Intelligence features.
Its fiscal 2026 capex is expected to be at roughly similar levels as last fiscal. As scrutiny builds around Big Tech’s spending spree, Apple’s capital discipline is increasingly seen as a strength.
Tesla is making one of the sharpest pivots. As demand for electric vehicles (EVs) is cooling down, Elon Musk is pinning huge hopes on autonomy and AI as Tesla’s next growth engine. The company expects its capex to exceed $20 billion this year, up sharply from roughly $8.5 billion last year.
The investment is directed toward autonomy, AI training infrastructure and robotics. Tesla views AI as core to its robotaxi and Optimus ambitions.
However, unlike hyperscalers with strong recurring cloud revenues, Tesla’s core auto business remains cyclical and margin-sensitive. The AI bet could unlock new revenue streams, but there is execution risk, and it may take years before these projects generate meaningful revenues.
While Tesla has a strong cash balance of nearly $44 billion, this massive capex will indeed weigh on the company’s near-term FCF, which is concerning given the slowdown in its core EV business.
While hyperscalers spend, NVIDIA supplies.
The AI chip leader sits at the center of this spending cycle. Alphabet, Amazon, Meta and Microsoft are pouring hundreds of billions into data centers largely filled with NVIDIA’s GPUs.
NVIDIA’s own capital expenditure is also rising as it expands capacity to meet demand. But unlike its customers, NVDA benefits immediately from the AI buildout.
NVDA currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
This AI buildout is historic in scale. It is a boon for chipmakers and infrastructure suppliers like NVIDIA, while reshaping Big Tech balance sheets and cash flow profiles. The FCF of most of these Mag 7 companies will be declining. Debt issuance is rising. Some companies may even post negative FCF in the next two years.
AI is clearly transformative. The debate now is about timing, returns and financial durability. For the Mag 7, the next phase will be defined by execution.
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This article originally published on Zacks Investment Research (zacks.com).
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