As growing AI spending puts pressure on one of the world's most successful companies, Alphabet's first-ever quarterly cash burn has rattled investors ahead of more Big Tech earnings reports due next week. The pressure is expected to intensify.
Even as Google Cloud, which leases AI computing capacity, posted a record 82% increase, the Google parent burned $5.9 billion in cash during the second quarter. The spending underpinning the cash burn is only expected to rise, with Alphabet now projected to spend an additional $15 billion in 2026 and signalling another increase the following year.
One of the clearest signs of how AI is reshaping Big Tech is the mounting financial pressure. A company once known for its hefty profit margins and abundant cash generation to fund new investments is now relying on debt and share sales to finance capital expenditure, which is projected to exceed $700 billion this year due to inadequate cash flows.
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Attention now shifts to Amazon, Microsoft and Meta Platforms, which are due to report their results next week. Before the opening bell on Thursday, shares of all three companies were down between 2% and 4%, while Alphabet led the decline with a 5% drop.
The declines reflect investor concerns that, despite returns lagging behind spending, the other technology giants are also likely to raise their capital expenditure forecasts.
Charu Chanana, chief investment strategist at Saxo Markets, said, "The risk is tilted towards further increases, particularly while Microsoft and others remain capacity-constrained."
"But investors will increasingly focus on how much of that cash must be reinvested simply to remain competitive — and whether AI revenue can grow faster than capital expenditure, depreciation and operating costs."
Analysts expect Alphabet and Amazon to burn cash in 2026, while Meta's cash flow is likely to shrink 95.7% to just $1.85 billion.
Microsoft's current fiscal year, which ends in June next year, is projected to generate $25.39 billion in cash, less than half of the $58.74 billion expected in the previous fiscal year.
This fiscal year, their capex-to-revenue ratio — a measure of how much of every sales dollar is reinvested into spending — is expected to rise sharply. Alphabet's ratio is projected to climb to 41% from 23%, Microsoft's to 45% from 31%, Amazon's to 25% from 18%, and Meta's to 54.9% from 35.9%.
Google Cloud's strong performance, which has outpaced its larger competitors in recent quarters and may be helping it gain market share, is another factor raising the competitive stakes for Amazon and Microsoft.
Alphabet executives said they plan to lease additional data centre capacity from third parties to meet customer demand, even though doing so is expected to weigh on profit margins.
Following Wednesday's results, at least 20 brokerages raised their price targets for Alphabet, lifting the median target to $430 — nearly 26% above the previous closing price. Citizens remained the most bullish with a target of $515, while TD Cowen had the lowest target at $240.
Amazon Web Services, the largest cloud provider in the United States, is expected to post revenue growth of 31.04% this quarter, up from 28.4% in the previous three months.
Microsoft, meanwhile, is projected to report cloud growth of 39.98%, broadly in line with the 40% growth recorded in the January-March quarter.
Competition is also expected to intensify as Meta enters talks to lease AI processing capacity to Anthropic, adding pressure in a cloud infrastructure market already dominated by AI-focused companies such as CoreWeave.
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