On February 9, the Financial Times reported that as investment by technology giants in the AI ​​field has soared this year, with capital expenditures exceeding cash flow, even some of the world’s most profitable companies will have to raise tens of billions of dollars to pay for these investments.

U.S. technology giants invest wildly in AI

Over the past two weeks, investors have been surprised by the scale of their AI spending plans revealed by Google parent Alphabet, Amazon and Meta. In order to compete for dominance in what Silicon Valley generally considers "the biggest wave of innovation since the Internet," these companies plan to invest a total of more than 660 billion U.S. dollars (approximately 4.58 trillion yuan) in chips and data centers this year.

How to raise funds?

Analysts pointed out that this unprecedented large-scale construction of infrastructure will force executives of technology giants to choose between three options:Either cut returns on capital to shareholders, dip into cash reserves, or tap into bond and stock market financing more than originally planned.

"The resulting positive impact on the issuance of high-rated bonds is obvious." JP Morgan analysts said. They expect technology and media companies to issue at least $337 billion in high-rated debt this year.

Big tech stocks have been selling off hard in recent days as shareholders balk at huge capital spending plans and worry about when the spending might pay off, although some stocks recovered on Friday.

Amazon hinted in a regulatory filing on Friday that it may soon seek to raise new capital through debt or equity, but did not specify a specific amount or timeline. Affected by this news, the company's stock price closed down 5.6% that day.

Financial data platform S&P Capital IQ predicts that Amazon's $200 billion capital expenditure plan this year is expected to exceed its operating cash flow of $180 billion. Oracle raised $25 billion in debt last week to support its massive bet on AI, easing investor concerns about how it would fund a $300 billion deal to provide computing power for OpenAI.

Analysts at TD Securities pointed out that investment-grade corporate bond issuance this week could reach as much as $80 billion, twice the "normal seasonal rhythm", driven by potential "huge transactions" from companies such as Amazon, Meta and Alphabet. TD Securities pointed out in a report to clients that U.S. investment-grade credit spreads have widened in recent days due to market expectations that technology giants will soon enter the market for financing.

Cash flow tight

In order to train and run AI systems such as ChatGPT, Google Gemini and Anthropic's Claude, the relevant companies have invested so much construction funds that they may overwhelm the profit performance of these companies with the world's most cash flow generation capabilities.

Analysts at BNP Paribas pointed out that the free cash flow of Oracle, Alphabet, Amazon and Meta is beginning to "rapidly decline, approaching the negative range". At present, it seems that only Microsoft "appears to be more resilient at least at this stage."

Meta expects capital expenditures to be as high as $135 billion this year, while analysts expect cash flow from operating activities to be $130 billion. The company completed its largest bond offering to date at $30 billion last October.

Alphabet expects to generate $195 billion in operating cash flow, enough to cover its $185 billion capital expenditure plan, but the company will also need to pay established share repurchases and dividends. While its long-term debt has ballooned from $10.9 billion in 2024 to $46.5 billion last year, the company still held $126.8 billion in cash and equivalents at year-end.

From asset-light to capital-intensive

Russ Mould, investment director at investment firm AJ Bell, said the recent decline in technology stocks is partly due to concerns that these Internet groups "are moving from an asset-light model to a more capital-intensive model," making their cash flows "more opaque or difficult to predict than in the past."

Mold said that among technology companies focusing on AI,“The growth rate of capital expenditure has far exceeded revenue growth”. "The first signs of this trend are the increased use of debt and the scaling back of stock buyback programs. A decline in such generous spending will reduce the returns for investors on short-term holdings in these companies," he noted.