Alphabet, Amazon, Meta face FCF squeeze on 2026 AI capex

How 2026 capex surge squeezes Google, Amazon, Meta cash flow

Big Tech’s 2026 investment cycle is defined by multi‑year commitments to AI data centers, custom chips, and network capacity. As cash outlays accelerate ahead of monetization, free cash flow compression is a near‑term consequence for Alphabet (Google), Amazon, and Meta, with spending profiles that skew heavily toward infrastructure.

Mechanically, free cash flow falls when capital expenditures outpace operating cash generation. For hyperscalers, cash is spent upfront on land, buildings, power, and accelerators, while revenue benefits arrive over time through AI services, cloud consumption, and advertising products that leverage new models.

Because capital projects scale faster than near‑term cash returns, the aggregate effect is a tighter cash conversion cycle into 2026. This sets up a year in which investors will watch whether utilization, pricing, and workload mix can narrow the gap between spend and cash inflow.

Why AI infrastructure capex compresses margins via depreciation and costs

AI infrastructure is primarily capex that becomes property and equipment, then flows through income statements via depreciation. That accounting lag means today’s cash spend shows up as higher non‑cash expense over several years, reducing reported operating margins even if underlying demand is healthy; on top of that, opex such as power, networking, and personnel rises with each new data hall.

Coverage of Alphabet’s plans underscores the scale behind this dynamic. “Google now expects 2026 capital expenditures of $175 billion to $185 billion,” as reported by TS2 Tech in a Jefferies‑related note.

A separate investor analysis frames the margin impact explicitly: according to Seeking Alpha, Alphabet’s AI buildout includes a roughly $180 billion CapEx plan and carries margin compression risks through 2026. In practice, that means a larger depreciation base, higher unit costs until assets reach efficient utilization, and slower near‑term expansion in operating margin metrics.

Immediate market reaction: bearish sentiment as spending outpaces free cash flow

Equity reaction has tilted cautious where spending guides overshadow near‑term cash returns. At the time of this writing, Amazon shares closed at $210.32, down 5.55% on the session, based on data from Yahoo Finance, reflecting investor sensitivity to guidance that front‑loads investment before payback is visible in cash flow.

Multiple analysts and publications have emphasized the cash‑flow trade‑off at the hyperscalers. As reported by The Information, “Big tech’s dramatic ramp‑up in projected capital expenditures this year will all but wipe out free cash flow for Amazon, Google and Meta Platforms.”

The path forward depends on timing: if utilization, AI adoption, and pricing improvements arrive faster than depreciation ramps, reported margins and cash conversion could stabilize sooner; if not, 2026 may remain a transition year in which spending runs ahead of free cash flow.

AWS capex outlook and pressure on AWS operating margins

Within Amazon, AWS capex supports GPUs/accelerators, storage, and data center buildouts that are capitalized and depreciated, while energy, networking, and talent are expensed as opex, together shaping “capex vs opex” dynamics. This mix raises the segment’s cost base in the near term before AI services and broader cloud consumption fully absorb new capacity.

Recent performance snapshots illustrate the margin effect at the segment level: GeekWire reported an AWS operating margin near 33% in a recent quarter, down from almost 40% earlier, citing higher depreciation and infrastructure costs among the drivers. If AWS capex remains elevated into 2026, segment operating margins may stay under pressure until new workloads lift utilization and revenue sufficiently to offset the growing depreciation schedule.