Big Tech’s spending spree is about far more than capex

As revealed in the earnings reports over the last two weeks, this number is set to continue its sharp rise in 2026. Amazon gave guidance for $200 billion in 2026 capex, with about $180 billion and $125 billion for Alphabet and Meta, respectively. Unlike the others, Microsoft has a fiscal year that ends in June, but in its first half of 2026 it spent $72 billion. If it keeps up that pace, 2026 capex for the four companies will be about $650 billion, roughly the size of the Argentine economy, the 26th largest in the world.

Spending at this scale will transform the major financial statements of these companies. In the income statement, where we see revenue and earnings, capex is accounted for through depreciation costs. Instead of expensing capex all at once, it happens over several years. In AI data centers, the servers and networking equipment are depreciated over five to six years, with the rest coming over longer periods. According to Alphabet, servers alone will account for 60% of its total spend.

That means if Alphabet spends $180 billion on AI data centers, about $108 billion will be for servers. Depreciated over six years, that’s $18 billion a year in new expenses starting next year, before we even account for all the non-server capex. Alphabet’s 2025 depreciation expense was $21 billion, so it’s likely to double by the end of 2026, putting pressure on Alphabet’s gross margins.

On the balance sheet, home of assets and liabilities, the four companies added nearly $117 billion in debt and lease liabilities in 2025. Just this week, Alphabet dipped into the debt market for at least another $27.5 billion. While still modest, fourth-quarter interest expenses for the group rose by more than half from the year before. Estimates vary widely, but new debt and leases for these four companies could be near $200 billion in 2026. Another cloud provider, Oracle, has said it could borrow up to $50 billion this year.

The cash flow statement is where we’ve seen the most abrupt changes. These companies are operational cash flow giants, totaling over half a trillion dollars in 2025. But because of the capital expenditures, they only kept $163 billion, known as free cash flow. FCF is the source of dividends and share buybacks, and the four companies had $28 billion left after those outlays.

That’s a nice level of cushion, but it’s about to disappear. Because of the capex surge, the companies will have to grow operational cash flows by about 30% just to maintain the same FCF level as 2025. Analysts polled by FactSet are predicting a 19% rise on average. That means the companies may be forced to slow or even suspend buybacks, and dividend hikes could be off the table. Otherwise, they will have to borrow to fully fund the same level of cash return.

One or more of these companies could even wind up with negative FCF in 2026, with Amazon and Meta being the most likely candidates.

Meta has no cloud unit revenue to offset its new costs. It is spending about $200 billion over two years on AI data centers, which are just for Meta’s use in research, back-end things like ad targeting, and front-end features like the Meta AI chatbot that competes with OpenAI’s ChatGPT. When it comes to capex, Meta is making the biggest gamble, and if it doesn’t hit, the company will have to pivot again, much like it did around its Metaverse gambit.

To be sure, for Amazon, Microsoft, and Google-parent Alphabet the spending is only one side of the coin. There’s also substantial revenue being generated by their cloud units, which rent out most of the AI servers to customers. Revenue is likely to total about $370 billion in 2026, according to analysts tracked by FactSet. Each company has a large contracted multiyear backlog. Google Cloud is even seeing its operating margin expand. If cloud revenue continues to rise briskly, all the capex will be justified.

The name conspicuously absent from the capex conversation is Apple. Among Big Tech, Apple is the only company not rushing headlong into a spending spree. Apple has a hybrid model where it maintains its own servers, but mostly rents them from third parties, primarily Google. Apple has kept its powder dry, spending just $12 billion on 2025 capex, leaving it with $123 billion in FCF. It returned most of that to shareholders. While everyone else is reshaping their financials, Apple remains asset-light, and it still has time to get its AI strategy right.

Write to Adam Levine at adam.levine@barrons.com