What happened
Amazon, Alphabet, Microsoft, and Meta committed $725bn to AI infrastructure, driving their combined free cash flow to a decade low. Wall Street forecasts project Q3 free cash flow will drop to $4bn, down from a $45bn quarterly average since 2020, marking the lowest full-year level since 2014. Amazon expects to spend more cash than it generates this year, while Meta and Microsoft anticipate burning cash in at least one quarter. Alphabet issued $48bn in new debt and Meta $55bn, both pausing share buybacks to fund the build-out.
Why it matters
Reduced free cash flow forces finance teams to model increased debt and curtailed shareholder returns. Procurement teams face rising hardware costs and supply chain strain, with Microsoft adding $25bn to capex due to inflation and Meta $10bn. This capital intensity shifts unit economics, requiring platform engineers to optimise infrastructure spend against rising component prices. This follows earlier reports of Big Tech's AI-driven capital expenditure creating liquidity and leverage pressures across the industry.
