US Big Tech’s fat profits conceal unsettling cashflows

Key topics:Big Tech profits rise while free cashflow falls due to AI capex boomMassive $800bn AI data-centre spending drives debt and obligations higherAI boom shifts returns to chipmakers while hyperscaler returns weaken.Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox every morning on weekdays. Register here.Support South Africa's bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..From The Economist, published under licence. The original article can be found on www.economist.com© 2025 The Economist Newspaper Limited. All rights reserved..The Economist.A chart is haunting Silicon Valley. The profits of big cloud-computing firms (Amazon, Google, Meta, Microsoft and Oracle) are rising inexorably. Yet the amount of cashflow they generate after capital spending is falling. Sketched together, these soaring profits and diving free cashflows, which until recently rose in unison, resemble the gasps of the world’s investors.In short order America’s biggest companies have gone from printing money to burning it. Amazon, Meta and Microsoft are all expected by analysts to announce negative cashflows in at least one quarter this year. Alphabet, the parent company of Google, will just about keep its head above water. Oracle, the weakest of the bunch, is already drowning.It does not take Poirot to work out what’s going on. This year the five firms will spend $800bn filling warehouses with computers to run artificial-intelligence models. These investments barely register on their profit statements, since assets depreciate only once built—and then only slowly. Cashflow statements, though, are less susceptible to obfuscation. At around 40% of their revenues this year, the cloud giants’ capital expenditures will surpass those of the oil industry during the shale boom in the 2010s and the telecoms industry during the dotcom bubble in the 1990s..Read more:.AI bubble: Big tech hyperscalers have a serious chip inflation problem.Arguments dismissive of the scale of big tech’s transformation have collapsed under the weight of the growing bill. Comparisons to the dotcom bubble are wrongheaded because the big spenders today generate ample cashflows, went one argument. Not any more. Their cashflow pressures cannot be that great because firms are still buying back bucket-loads of their own stock, many said. During the most recent quarter, buy-backs collapsed. A third is that big tech trades “only” at 23 times the firms’ forecast earnings. Yes, but when the denominator of this equation captures almost nothing of their spending, is it at all useful?Nowadays investors judge the success of these firms on the basis of concentrated revenue contracts stretching far into the future, rather than dispersed sales received today. Mostly these contracts involve selling computing capacity to model-makers like OpenAI and Anthropic, which are themselves incinerating vast piles of cash. Total future revenue agreements have risen to $2trn, from $730bn last year, at Amazon, Google, Microsoft and Oracle (Meta is a buyer, rather than a seller, of computing capacity).Simple balance-sheets with intangible assets and generous cash buffers have been replaced by ones which are complicated, asset-heavy and indebted. Since the start of last year the big five have raised $260bn from bond markets, a quarter of all such borrowing by listed American non-financial firms. What started as a local affair has become a global bacchanal. Nearly a third of the haul from selling bonds this year is in currencies other than the dollar. Alphabet, Google’s parent, will soon issue its first bonds denominated in yen.Much larger obligations lurk off-balance-sheet. The biggest are $820bn of future payments to lease data centres yet to be built, up from $270bn a year ago. Commitments to spend money on other things, like packing their data centres with chips, have risen as fast. Amazon, Google, Meta and Oracle now disclose $680bn of such obligations. Other bills are tied to special-purpose vehicles: separate entities with their own balance-sheets. Last year one assembled to build Meta’s new data-centre in Louisiana issued the biggest single corporate bond in history. Oracle’s finance chief recently talked about “uncoupling” the firm’s cashflows from its capex, presumably with similarly advanced financial engineering.This vast nexus of AI contracts combines an absolute faith in technologists with a naive trust in lawyers. Occasionally the market is discerning about what these contracts really mean; Oracle’s shares have been hammered since investors realised how dependent its future revenue is on OpenAI. More often the market is not. Bankers increasingly whisper about decaying documentation in AI financing agreements. “When we ask our lawyers to find ways that a hyperscaler might wriggle away from or re-negotiate a lease contract, often they come back with a very long list,” says the boss of one big lender that has steered clear of some more esoteric financing structures in the AI boom.Kamikaze capexSo far Silicon Valley’s capital spending has been a great act of charity to America’s tech industry. The firms have assumed the role of central planners, attempting to make the complex chain of returns on investment work across the AI economy: data-centres are useless if businesses don’t find models useful enough to pay for, and model-makers cannot raise enough capital to make them.In the process, the hyperscalers have sacrificed their own returns. Only shares in Alphabet have beaten the NASDAQ index during the past year. Big tech has also liberally lent its creditworthiness across capital markets. Many firms that contract with the giants can take those contracts to the bank (literally) and raise more debt. Moreover, the hyperscalers’ capex has become someone else’s free cashflow. Broadcom, Micron, Nvidia and Sandisk, four chip companies, are all minting real fortunes outfitting big tech’s data centres. Together they account for a quarter of the expected profit growth in the S&P 500 index this year..Read more:.Alphabet surges on AI, cloud demand as CapEx soars to $85bn.Clearly this is unsustainable without enterprises becoming much more willing to pay for AI. But for now there are no brakes on the train. The hyperscalers’ capex bills this year will be twice as great as analysts predicted they would be a year ago. If AI models keep getting hungrier for computing power and the cost of equipment keeps rising, this forecast will soon fade into the distance, as those that came before it did. After two years of consistent shock-and-awe, nothing would be less shocking.

US Big Tech’s fat profits conceal unsettling cashflows

Related Stories

AI bubble: Big tech hyperscalers have a serious chip inflation problem

BN Daybreak - Mon 4 May 2026: Deepfake scams, Big Tech’s AI boom, and US intervention in the Persian Gulf

Boardroom Talk: BN Portfolio Mag7 shine brightly in Q1

BN portfolio: China halts Meta’s $2 billion Manus AI deal, escalating tech tensions