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Big Tech's AI Spend Balloons as Cash Flows Crater

By Oliver Benns

Big Tech's AI buildout is draining the sector's famed cash machines. Meta's free cash flow collapsed 91% last quarter, while Amazon and Google both swung negative - territory Alphabet investors had never seen. Capex across Microsoft, Amazon, Meta and Google is running at $150-200bn each, transforming the hyperscalers into capital-intensive manufacturers judged on returns rather than software-style margins. None have articulated a business model for the spend, and markets are turning skeptical as vague answers replace the early assumption that smart companies would figure it out.

AI Revenue Loop Tightens Around OpenAI and Anthropic

Two loss-making startups are propping up the hyperscalers' AI top line. OpenAI and Anthropic account for an estimated 73% of Amazon's AI revenue, 74% of Microsoft's, and a large share of Google's, according to Wall Street research. The bulk of reported AI revenue is intra-industry - money cycling between architecture builders - rather than end-customer demand, raising doubts about whether the buildout has a paying market underneath it.

Unrealised AI Gains Inflate Amazon and Google Earnings

Paper gains on private AI stakes are distorting hyperscaler profits. Roughly 85% of Amazon's net income jump was attributable to unrealised gains on its Anthropic and OpenAI holdings, with Google at 87% on stakes including Anthropic and SpaceX. The mark-ups have compressed headline PE ratios below 20x, flattering valuations even as operating cash flows deteriorate.

SpaceX Halves After IPO Pop as XAI Story Wobbles

SpaceX shares surged on debut then cratered roughly 50% within weeks of listing. The prospectus leaned heavily on an XAI narrative and a $28tn addressable market, but disclosed more revenue from leasing data centre capacity to Anthropic than from core operations - undercutting the AI growth pitch. The reversal has cooled expectations for upcoming Anthropic and OpenAI listings, with trillion-dollar valuation targets now in question.