Artificial intelligence infrastructure spending is ballooning to astronomical levels, and Big Tech's cash flow is expected to hit its worst level next year. Credit concerns have surfaced first in the heavily leveraged neocloud sector, and unease across the industry has yet to subside.
U.S. investment bank Morgan Stanley said in a report released on the 19th that capital spending by hyperscalers — operators of large-scale data centers — and neocloud companies specializing in AI is projected to reach $1.58 trillion next year, a 60% surge from $980 billion this year. Yet the free cash flow deficit at AI Big Tech firms is forecast to hit a record $540 billion next year, including leases. Morgan Stanley's analysis covered not only hyperscalers such as Microsoft, Amazon, Alphabet and Meta but also neocloud companies including Oracle, SpaceX, CoreWeave and Nebius.
The gap reflects revenue that is not arriving as fast as AI investment is rising. Morgan Stanley projected that operating cash flow would increase by only $240 billion next year. Free cash flow is operating cash flow minus capital expenditures.
Against that backdrop, internal testimony that Amazon Web Services' free cash flow deficit will persist for two years has come to light and drawn attention. According to a transcript of an internal AWS meeting obtained by the U.S. outlet Business Insider, Prasad Kalyanaraman, the executive in charge of AI infrastructure, said the scale of the free cash flow deficit was enormous and that the deficit in the AI business could continue for the next two years. Amazon disclosed its first free cash flow deficit in the second quarter of this year.
Experts voiced concern that the focus on neocloud troubles has obscured the debt problems of hyperscalers. Standard & Poor's said hyperscalers may carry more debt than is publicly known, while Goldman Sachs noted that hedge funds cut their exposure to technology shares last week at the fastest pace in a decade.