Shareholders in these big spenders face an uncertain future.
Shareholders in these big spenders face an uncertain future.
It's hard to wrap your head around the amount of money that's flooding the artificial intelligence (AI) industry. According to research compiled by Vanguard, the five major hyperscalers, which includes Alphabet (GOOGL -2.47%) (GOOG -2.32%), Microsoft, Amazon, Meta Platforms (META -3.72%), and Oracle, will spend almost $780 billion on capital expenditures (capex) in 2026, up 87% year over year. This is just the start.
Over each of the following four years, from 2027 through 2030, that figure will exceed $1 trillion annually. This is more than 10 times greater than the combined capex of these five companies in 2020.
The trillion-dollar AI experiment is happening right before our eyes. Here's what it means for hyperscaler investors.
Owning these stocks means taking on heightened financial risk
There's no doubt that these businesses present investors with more financial risk than at any point in recent history. As a group, their debt burdens are soaring. Alphabet and Meta Platforms provide a clear example.
As of June 30, Alphabet carried $98.2 billion in long-term debt. This was 568% higher than exactly four years ago, which was before OpenAI released ChatGPT.
As of June 30, Meta Platforms carried $83.7 billion in long-term debt. It had no debt on the balance sheet four years earlier.
That borrowing, of course, is going toward funding AI investments. The result of this capex is that free cash flow (FCF) is taking a huge hit. Alphabet reported negative FCF of $5.9 billion in Q2, while Meta Platforms' FCF fell 91% year over year. Analysts expect both businesses to burn cash in 2027.
At the same time, the leadership teams of these two internet pioneers have paused share buybacks. Capital returns to investors have been redirected to data centers.
Averytin News Financial update.