AI spending among the largest technology companies is projected to reach $765 billion in 2026 and nearly $1.2 trillion in 2027, as Amazon, Alphabet, Meta, and Tesla all reported deteriorating cash positions amid a worsening memory chip shortage.
Amazon, Alphabet, Meta, and Tesla all reported deteriorating cash positions in their most recent quarters, underscoring the mounting financial toll of the artificial intelligence infrastructure race as memory costs climb far beyond earlier projections.
AI spending among the largest technology companies is projected to reach $765 billion this year, rising to nearly $1.2 trillion in 2027, according to Goldman Sachs.
Amazon raised its capital spending forecast for the year to $220 billion on Thursday — the highest among the four major hyperscalers — while also reporting negative free cash flow of $7.6 billion for the trailing 12 months. A day earlier, Meta disclosed a 91% drop in cash generation compared to the prior year.
Alphabet reported that free cash flow turned negative for the first time on record. Alphabet finance chief Anat Ashkenazi told analysts on the earnings call that free cash flow will remain under pressure as the company pursues the "AI opportunity."
A key driver pushing costs above earlier estimates is what analysts and executives are describing as a memory crisis — surging demand for AI processors that depend on memory supplied by a limited number of vendors has sent prices sharply higher.
Tesla CEO Elon Musk described memory pricing as "insane" on the automaker's earnings call last week. Amazon CEO Andy Jassy said the "inflated price" of memory chips drove his company's capital expenditure guidance higher.
Apple, which is spending considerably less than its hyperscaler peers, faces its own exposure. The company issued a weaker-than-expected revenue forecast for the current quarter, citing supply constraints. CEO Tim Cook, who is stepping down on September 1, said on the earnings call that the company does not expect conditions to improve this year.
"If you look beyond September, we see the market pricing for memory continuing to increase, which could drive an increasing impact on our business," Cook said. "And we're continuing to evaluate this." Apple has already raised prices on Macs and iPads, and many analysts expect iPhone price increases later this year.
Investor reactions to the earnings reports varied sharply. Tesla and Alphabet shares fell after each reported negative cash flow and signaled accelerated spending. Meta declined following its report, weighed down by a weak forecast and uncertainty around its AI monetization strategy.
Microsoft stood apart, posting its best single-day market performance since 2008 after delivering better-than-expected results alongside increased capital expenditure guidance. Wells Fargo analysts, who recommend buying the shares, wrote in a note to clients that "MSFT has room to meaningfully re-rate." The rally trimmed Microsoft's year-to-date stock decline to roughly 7%.
Amazon shares rose after its report. Mark Mahaney, an analyst at Evercore ISI, told CNBC's "Closing Bell: Overtime" that "not only is the revenue growth dramatic, but the profitability is rising." Mahaney noted that Amazon Web Services had been trailing Microsoft Azure and Google's cloud business in growth rate, adding that "this is just the breakout that the stock needed."
Wedbush analysts said in a Friday note that Amazon's report was the "cleanest beat" among the hyperscalers they cover.
Despite healthy revenue figures across the group, none of the major megacap stocks are on pace for breakout years, reflecting investor skepticism about whether the AI buildout — funded increasingly by debt — will generate returns commensurate with its cost.
An additional headwind comes from Chinese AI laboratories, which have released new open-weight models that are narrowing the performance gap with OpenAI and Anthropic at significantly lower price points. These models can be downloaded, customized, and hosted independently, presenting a challenge to the premium AI service market that underpins much of the hyperscalers' investment thesis.
Nvidia, the dominant supplier of AI chips at the center of the spending surge, is scheduled to report its own quarterly results on August 26 — a date that analysts expect will offer the clearest picture yet of how much longer the buildout can sustain its current pace.
Sara Montes de Oca is the Editor in Chief of TechEchelon. Previously a correspondent and producer in Washington, D.C., covering business, finance, and politics.
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