U.S. hyperscalers are starting to show returns on their artificial intelligence investments, but the rising cost of the buildout is taking a bite out of their free cash flow, and investors are noticing.
At their current trajectory, the so-called "hyperscalers" - Microsoft, Alphabet, Amazon, Meta Platforms and Oracle - are expected to spend more combined on capital expenditures than they generate in free cash flow by 2027, according to a Reuters analysis of LSEG consensus estimates.
The data shows the companies will generate about $340 billion more in annual operating cash flow in 2027 than in 2025, but capex is expected to rise by roughly $534 billion, equivalent to about $1.57 of additional investment for every $1 of additional cash flow.
When those companies report earnings, beginning with Alphabet on Wednesday, investors will be looking for signs that the rapid growth in cloud and AI revenue can keep pace with the expected spending surge.
The recent performance in the shares suggests concerns. Hyperscalers led the market rally since the AI buildout began, surging on the promise of future growth. Over the last year, all but one - Alphabet - have trailed the S&P 500.
