Big Tech sheds nearly $900bn in rout over soaring AI spending

Big Tech companies lost nearly $900bn in market value after another sharp rise in their spending in the third quarter, which has turned some of the most profitable businesses in history into cash incinerators as they stake their futures on AI.

Shares in the big four “hyperscalers” — Amazon, Meta, Microsoft and Google parent Alphabet — all fell after revealing their third-quarter results, in which capital expenditures almost doubled and alarm bells sounded about slowing revenue growth in core businesses.

Collectively, their capital expenditures, mainly devoted to chips and data centres, rose to $207bn in the period from $113bn a year earlier. Despite the negative reaction, tech executives stuck to their plans to spend another $232bn in the fourth quarter that could push capex to $740bn this year.

Until this year the tech giants had been generally able to fund their investment from prodigious cash flows, but recently most have started to burn cash, often for the first time in their history as public companies, and have announced a series of huge debt and equity issuances.

The dramatic shift in their financial profile has exacerbated concerns about the sustainability of the AI boom that has driven Wall Street’s growth in recent years.

Brent Thill, an analyst at Jefferies, said investors were spooked by good but not stellar earnings. He added markets were growing concerned that the limits of building physical infrastructure meant the hyperscalers could not serve all of their demand.

“The tech pool is closed. We’re seeing a broad sell-off with everyone running right now,” he said. “We don’t know if the closed sign will be up for 10 minutes, 20 minutes or longer.”

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Tech stocks had regained some lost ground earlier in the week after Anthropic on Monday published its long-awaited IPO prospectus, which showed rapid growth and a broadening customer base for the five-year-old AI lab.

But the harsh market reaction to earnings from some of the biggest players in the sector suggests investors still have their doubts about the sustainability of AI investments — raising the stakes for Anthropic’s IPO expected later this month.

The historic outlay on AI infrastructure across the tech sector — which analysts have calculated is on track to exceed the percentage of US GDP spent on railroads or telecom and fibre — has had a dramatic impact on the balance sheets of some of the world’s largest companies.

Google, Meta and Amazon, which threw off $36.4bn of free cash flow in the third quarter of 2025, together burned $45.2bn of cash in the same period this year. Amazon was the biggest spender, reporting negative $33.5bn free cash flow in the period as it boosted capex to a record $75.8bn and raced to build more data centres and buy chips.

A 39 per cent rise in cloud sales at Amazon Web Services to $46bn was not enough to justify the spending to the market and the stock fell 7 per cent, erasing nearly $200bn from its value. Chief executive Andy Jassy also gave a weak forecast for sales in the Christmas period and third-quarter revenue missed estimates.

Brad Reback, an analyst at Stifel, said investors were growing more demanding of Big Tech and wanted evidence that their AI infrastructure spending was translating into new revenue.

“A lot of the good news is now clearly priced in,” Reback said. “The market is telling us that the cost of capital matters and it is getting harder on the margin to finance these sites.”

Alphabet’s shares were the worst hit, tumbling 13 per cent on Thursday, wiping out half a trillion dollars in market capitalisation. Investors reacted to Google’s free cash flow falling to negative $9.1bn from positive $24.5bn a year earlier — only the second quarter of cash burn since it went public in 2004 — as capex surpassed $50bn.

Google also reported a second successive quarter of slowing growth in its core search unit. Executives admitted that it was struggling to generate the same advertising revenue from its Gemini chatbot and “AI mode” answers versus its traditional list of links.

Similar to Amazon, a doubling in cloud revenues was not enough to offset the sentiment. Chief executive Sundar Pichai said it could not bring new data centres online fast enough to satisfy demand for AI and that selling its custom “TPU” AI chips to external customers would generate billions in new income.

Bernstein analyst Mark Shmulik dismissed the sell-off as a “knee-jerk reaction” to missing estimates and that tech companies were still growing, but conceded that investors are increasingly wary of another “sizeable increase” to spending next year.

“How high can capex go in 2027 and, increasingly, 2028, and what does that imply for funding sources and capital allocation priorities?” he said.

Alphabet has taken on tens of billions in debt and in June announced plans to raise about $85bn in its first share sale in more than two decades. Meta followed this week with a $95bn equity issuance plan backed by chipmakers Nvidia, AMD and Broadcom.

Last week, Meta fell 6 per cent after it revealed $35bn of capex in the third quarter and said it remained on track to hit $145bn for the full year. The social media company reported negative $2.1bn of free cash flow, its first quarter of cash burn since going public in the second quarter of 2012.

Microsoft was a notable outlier in the period and was praised for its capital discipline. Even as spending grew to $45.2bn, it still generated $18.6bn in cash in the quarter and its stock was only slightly down on the day after its earnings.

However, reflecting the cost pressures it faces, the software group on Monday offered buyout packages to about 60,000 staff.

SpaceX has also established itself as a leading player in the AI infrastructure race. Since the rocket maker went public in June, it has disclosed plans to spend $88.1bn this year as Elon Musk races to add more racks of GPUs to his pair of “Colossus” data centres in Memphis, Tennessee.

Morgan Stanley analyst Adam Jonas now estimates SpaceX will spend $278bn on capex next year, with AI spending accounting for 87 per cent of that.

The rocky market reaction to Big Tech earnings augurs badly for smaller players. Debt-laden neoclouds like CoreWeave have borrowed heavily to pay for data centres and Nvidia hardware and have been dogged by project delays and contract cancellations.

CoreWeave’s shares have fallen 47 per cent over the past six months and some of its debt has entered distressed territory ahead of its earnings report next month.

Musk on Sunday said the shake-out meant debt markets had largely closed to neoclouds and predicted “guppy-level death and consolidation” for most of the upstart cloud computing providers.

Data visualisation by Clara Murray in London. Additional reporting by Rafe Rosner-Uddin in New York and Michael Acton in San Francisco