Big Tech companies like Alphabet and Tesla are facing investor skepticism due to their aggressive spending on AI infrastructure, which is leading to negative free cash flow. Alphabet's free cash flow plunged to negative $5.9 billion in the second quarter, a stark contrast to the nearly $25 billion it generated a year ago. The company's CFO, Anat Ashkenazi, stated that most of the $44.9 billion in capital expenditures for the quarter went to supporting the AI buildout. Alphabet now projects capital expenditures for the year to be between $195 billion and $205 billion, with higher numbers expected in 2027.
Tesla also reported negative free cash flow of $1.1 billion in the quarter, reversing from $146 million a year ago and $1.44 billion in the first quarter of 2026. The company reiterated its expectation of over $25 billion in capital expenditures for the year, representing 200% year-over-year growth, with second-quarter capital expenditure soaring to $5.79 billion, much of which was directed towards self-driving technology. Analysts like Keith Fitz-Gerald noted that Tesla is sacrificing profitability for infrastructure.
Despite both companies reporting better-than-expected revenue, investors reacted negatively, with Tesla shares sliding 4% and Alphabet's parent company shares falling over 3%. This trend is raising alarms among investors, as big tech companies, once lauded for strong margins and cash flows, are now increasingly relying on debt and share sales to finance spending that could exceed $700 billion this year, creating pressure for AI revenue growth to outpace rising capital and operating costs.
This capital expenditure surge is not limited to Alphabet and Tesla. According to LSEG consensus estimates, by 2027, the combined capital expenditures of hyperscalers like Microsoft, Alphabet, Amazon, Meta Platforms, and Oracle are expected to surpass their free cash flow. Some analysts anticipate Alphabet and Amazon to burn cash in 2026, while Meta's cash flow is projected to shrink significantly, and Microsoft's capital expenditure as a percentage of revenue is also expected to increase, highlighting a broad shift in Big Tech's financial landscape.
