The AI spending boom is becoming so large so quickly that it’s hitting an important metric watched by investors: free cash flow.
In the wake of second quarter earnings last week from Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOG), and Meta (META), analysts at Bank of America raised their outlook for hyperscaler capital spending to roughly $860 billion in 2026 and projected it could climb to nearly $1.2 trillion in 2027 as demand for AI infrastructure continues to accelerate.
Meanwhile, Alphabet reported last week that the company’s free cash flow turned negative in the second quarter for the first time since the company went public in 2004 as Google.
Amazon’s trailing 12-month free cash flow recently turned negative as AI capex surged, while Meta’s quarterly free cash flow stayed barely positive in the second quarter despite strong operating cash generation. Microsoft’s free cash flow remains firmly positive.
For most of the past decade, the major cloud providers — the five main US hyperscalers, plus Alibaba (BABA), Tencent (0700.HK), and Baidu (9888.HK) in China — collectively generated between $135 billion and $272 billion in annual free cash flow, with free cash flow margins — free cash flow divided by revenue, measuring cash flow profitability — generally ranging from roughly 10% to 20%.
That’s likely to dramatically change beginning next year, the analysts write.
BofA forecasts free cash flow aggregated across the eight companies will swing from an estimated $180 billion in 2025 to roughly -$64 billion in 2026, before falling further to -$144 billion in 2027 and -$186 billion in 2028. At the same time, aggregate free cash flow margins are projected to fall to -2.8% this year, followed by declines to -5.4% and -5.8%, respectively, in the following two years.
That said, there is positive momentum, the Bank of America analysts said. Revenues are rapidly expanding: At the same time Google reported negative free cash flow, it reported year-on-year growth in its cloud division of 82%.
The four companies are citing increasingly long backlogs of committed customer spending. Across the largest cloud providers, remaining performance obligations and backlog now total roughly $2.3 trillion, the BofA analysts said, noting “increased hyperscaler appetite to continue investing in capacity, backed by customer commitments.”
If the hyperscalers can execute, the analysts said, they’re likely to surpass their previous free cash flow highs seen in the booming growth era of 2020 through 2024.
