MW Big Tech's $700 billion spending on AI this year is called the 'greatest capital misallocation in history'

By Christine Ji

Alphabet, Amazon, Meta and Microsoft are depleting their cash reserves and raising debt as AI spending moves even higher

Amazon's free cash flow fell to $1.2 billion in the first quarter, a 95% drop year-over-year.

Investors were already uneasy last quarter when Alphabet, Amazon.com, Meta Platforms and Microsoft announced plans to spend a cumulative $650 billion on artificial intelligence in 2026. So when three of the four hyperscalers shared plans to spend even more on Wednesday, those concerns were amplified.

Now, the anticipated capital expenditures among these Big Tech companies is closer to $700 billion: $190 billion for Microsoft $(MSFT)$, between $180 and $190 billion for Alphabet $(GOOGL)$ $(GOOG)$, between $125 billion and $145 billion for Meta (META) and $200 billion for Amazon (AMZN), which was the only company to keep its forecast intact.

Gary Marcus, an entrepreneur and prominent AI researcher, called Big Tech's spending the "greatest capital misallocation in history" in an X post following Wednesday's earnings announcements.

"None are making major profits on AI; none has a technical moat; a massive price war is inevitable. And few of their customers are seeing major returns on investment," Marcus wrote.

Read: Why Alphabet's stock is the standout gainer on Big Tech's monster earnings day

Essentially, the hyperscalers are pouring money into large language models that can be commoditized and difficult to monetize, he said.

Alphabet, Amazon, Meta and Microsoft all mentioned being capacity-constrained on their earnings calls, which is why they're racing to spend billions to bring data centers and chips online. Additionally, William Blair analyst Dylan Carden said out in a Thursday note that supply-chain shortages with memory chips have led to price increases, further elevating spend.

While Wall Street analysts haven't written off the entire AI trade, as Marcus has, they've become more discerning about winners and losers. Big Tech companies must show revenue acceleration and cost discipline in other areas as elevated capex levels put pressure on free cash flow.

Three months ago, analysts believed Amazon was on track to become the first hyperscaler with negative free cash flows in 2026. Yesterday's results showed that Amazon's first-quarter free cash flow plunged 95% year-over-year to $1.2 billion. Alphabet's free cash flow dropped 47% to $10.1 billion. However, JPMorgan analyst Doug Anmuth wrote on Thursday that both companies showed strong growth in cloud backlog, which justified the spend.

Declining free-cash-flow levels have led Big Tech companies to take on debt. On Thursday, Meta announced plans for a six-part investment-grade bond issuance, with Bloomberg reporting that the total debt raise would be between $20 billion and $25 billion. Meta did not immediately respond to a MarketWatch request for comment.

This comes after Meta raised $30 billion in debt last October - the company's largest-ever issuance. Credit-research company CreditSights reiterated its underperform rating on Meta's bonds on Thursday, saying that the price of Meta's bonds might drop because the company is flooding the market with debt.

See more: Amazon joins Meta, Google in jumbo bond club with up to $42 billion issuance

Anmuth was more critical of Meta's spending plans, downgrading the stock to neutral from overweight on Thursday. While Anmuth was impressed by Meta's 33% revenue growth this quarter, "we believe full-stack AI competition is intensifying and Meta has a more challenging path to returns on heavy AI capex beyond advertising," he wrote. Unlike the other three hyperscalers, Meta doesn't have a public cloud platform to rent out its infrastructure. That means Meta's AI investments must be monetized internally.

Hannah Pedone contributed.

-Christine Ji

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April 30, 2026 11:04 ET (15:04 GMT)

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