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That’s capital expenditures at the five Big Tech companies that are making the biggest plays on artificial intelligence (Nvidia, as a chipmaker rather than a service company, is big too, but is in a different category). The pattern of increasing spending looks similar to all of them. But the scale of the increase is not similar. Here is the same chart, with each company’s spending scaled to where it was four years ago
Microsoft has doubled its capital spending in order to compete in AI. Alphabet, Amazon and Meta have tripled theirs. And Oracle has pushed up spending 11-fold.
At Microsoft and Alphabet, operating cash flow is growing strongly enough to keep free cash flow more or less steady in the face of higher capital spending. At Meta, cash flow has started to wilt (and is expected to wilt more next year). Amazon where cash flow is always volatile has seen a sharp downturn, too. Finally, Oracle has begun to burn cash outright.
Unhedged’s argument has been that the market, far from blindly throwing money at AI and Big Tech, is making distinctions that appear to be based on cash generation. This continues to play out recently, with Oracle shares getting badly beaten up and Meta’s struggling. Alphabet’s shares have been relatively resilient partly because they were previously oversold on concerns about the future of the search business. One might be surprised that Amazon’s shares have not been hit harder, given the fall in free cash, but it has long been a company that prioritises reinvestment over profit.
