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Big Tech companies will have to raise tens of billions of dollars to fund their skyrocketing investments in artificial intelligence this year, as capital spending outpaces cash flows even among some of the world’s most profitable companies.
Google’s parent Alphabet, Amazon and Meta all surprised investors with the scale of their AI spending plans over the past two weeks. A total of more than $660bn is set to be ploughed into chips and data centres this year as they race to dominate what many in Silicon Valley believe will be the biggest wave of innovation since the internet.
The unprecedented infrastructure build-out will force Big Tech executives to choose between stemming capital returns to shareholders, raiding their cash reserves or tapping the bond and equity markets more than previously planned, analysts say.
“The upside implications for [high-grade debt] issuance are clear from this,” said analysts at JP Morgan, who forecast that tech and media companies would issue at least $337bn in high-grade bonds this year.
Big Tech stocks sold off sharply in recent days as shareholders balked at the gargantuan capex plans and fretted over when the spending was likely to generate a return, although some rallied on Friday.
Amazon signalled with a regulatory filing on Friday that it could soon look to raise fresh capital in debt or equity, though it did not specify an amount or timetable for any such deal. Its shares closed the day 5.6 per cent down after the announcement.
Its planned $200bn capital spending this year is likely to outstrip its cash from operations of $180bn, according to estimates from S&P Capital IQ.
Oracle last week raised $25bn in a bond offering to bolster its huge bet on AI, easing investors’ fears about how it would fund a $300bn deal to provide computing power to OpenAI, the lossmaking ChatGPT maker.
Analysts at TD Securities said the coming week could see as much as $80bn in investment-grade corporate bond issuance, twice the “normal seasonal pace”, driven by potential “mega deals” from the likes of Amazon, Meta and Alphabet.
US investment-grade credit spreads have widened in recent days in anticipation of Big Tech tapping the market, TD said in a note to clients.
The scale of capital investment in building new facilities to train and run AI systems such as ChatGPT, Google’s Gemini and Anthropic’s Claude threatens to overshadow profits at what have until now been some of the world’s most cash-generative businesses.
Analysts at BNP Paribas said that free cash flows at Oracle, Alphabet, Amazon and Meta were starting to “plummet toward negative territory”, with only Microsoft appearing “more resilient, at least for now”.
Meta’s guidance of up to $135bn in capital spending this year compares with analysts’ expectations of $130bn in cash from operations. The Facebook and Instagram parent raised $30bn in October in the social media group’s biggest bond sale to date.
Alphabet is forecast to generate $195bn cash from operations to cover its projected $185bn capex plans, though it must also pay for planned share buybacks and dividends. Its long-term debt jumped from $10.9bn in 2024 to $46.5bn last year, but it ended the year with total cash and equivalents of $126.8bn.
Concern that these internet groups were “moving from an asset-light business model to a more capital-intensive one” had hit tech stocks in recent days, said Russ Mould, investment director at broker AJ Bell, making their cash flow “less visible or predictable than before”.
“Growth in capex is massively outstripping growth in sales” at AI-focused tech companies, Mould said. “The first signs of this are increased use of debt and a reduction in share buyback programmes. A drop in this largesse lessens near-term returns from shareholdings in these firms.”
Additional reporting by Ian Smith, Stephen Morris and Michael Acton
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