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Investors are getting nervous about AI infrastructure spending as the Big Tech firms double down
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Over the past two weeks, Alphabet, Amazon, Meta, and Microsoft have outlined plans to spend more than $740 billion on capital expenditures this year, which Wall Street is reading as AI infrastructure spending, including data centers and chips.
Key facts
- Amazon is in a similar boat after reporting negative free cash flow of $42.4 billion over the past 12 months, compared with $14.8 billion in positive free cash flow the year
- Microsoft was the only exception when it came to free cash flow, it recorded $18.6 billion in positive free cash flow in its latest quarter, with spending on capex at $45.2 billion, less than the $50
- The Nasdaq fell 2.9%, and chip stocks took a drubbing, too: Nvidia dropped 4%, Broadcom more than 5%, and Qualcomm 11%
- Google’s parent company reported negative free cash flow of $9.1 billion in the third quarter, its second consecutive quarter in the red, even as quarterly capex grew to $51.4 billion
Summary
Investors are getting nervous about AI infrastructure spending as the Big Tech companies double down. Earlier in the AI boom, investors largely rewarded such big outlays, viewing them as a sign of confidence in the technology’s growth potential. The anxiety spilled across the market on Friday. A big part of the concern is that companies that used to have overflowing free cash flow from their core businesses are getting hit as AI threatens the economics of those businesses.