Alphabet made history this past quarter — but not in a way investors celebrated. The Google parent company recorded its first-ever cash burn, spending $5.9 billion more than it generated during the second quarter, even as its cloud division posted record growth of 82%.
The development has put Wall Street on edge ahead of upcoming earnings reports from Microsoft, Meta Platforms, and Amazon, all of which are expected to release their results next week. Before markets opened Thursday, shares of all three companies fell between 2% and 4%, while Alphabet itself led the decline at 5%.
The root cause: artificial intelligence. What was once a group of companies known for enormous profit margins and steady cash generation is now borrowing money and selling shares to keep pace with AI infrastructure demands. Industry-wide spending on AI is projected to exceed $700 billion this year, outpacing the cash these companies are actually bringing in.
Investors are worried the other tech giants will follow Alphabet’s lead by raising their own spending forecasts, even as the financial returns from AI investments continue to lag behind the pace of outlays. Alphabet has already signaled it plans to spend $15 billion more in 2026, with another increase expected the year after.
“The risk is tilted towards further increases, particularly while Microsoft and others remain capacity-constrained,” said Charu Chanana, chief investment strategist at Saxo Markets. “But investors will increasingly focus on how much of that cash must be reinvested simply to remain competitive — and whether AI revenue can grow faster than capital expenditure, depreciation and operating costs.”
The financial picture across the industry looks increasingly strained. Analysts expect both Alphabet and Amazon to burn cash in 2026. Meta’s cash flow is projected to shrink by 95.7%, leaving just $1.85 billion. Microsoft is expected to generate $25.39 billion in cash — less than half of the estimated $58.74 billion from the prior fiscal year.
A key measure of how aggressively these companies are reinvesting their revenue into spending is also set to nearly double. Meta’s ratio is expected to jump from 35.9% to 54.9%, Alphabet’s from 23% to 41%, Microsoft’s from 31% to 45%, and Amazon’s from 18% to 25%.
Despite the cash concerns, Google Cloud’s strong performance is adding competitive pressure on rivals. The division has been growing faster than its larger competitors in recent quarters, suggesting it may be gaining market share. Alphabet executives said they even plan to lease data center space from outside companies to keep up with demand, a move that will cut into profit margins but reflects how intense customer interest has become.
At least 20 brokerages raised their price targets on Alphabet following Wednesday’s results, pushing the median target to $430 — roughly 26% above the stock’s last closing price. The most optimistic forecast came in at $515, while the most cautious stood at $240.
“Google Cloud was an absolute blow out,” said Richard Clode, Portfolio Manager of Janus Henderson Investors’ Global Technology Leaders. “Alphabet has competitive advantage running all the way through the stack from their own custom AI chips through to distribution to billions of users.”
For Amazon Web Services, the largest cloud provider in the country, analysts expect growth of about 31% this quarter, up from 28.4% in the previous period. Microsoft’s cloud unit is expected to grow around 40%, roughly in line with the prior quarter — a result that may disappoint investors. Microsoft shares have already fallen nearly 20% this year, making them the worst performers among the so-called “Magnificent Seven” group of major tech stocks.
Competition in the AI cloud space is also intensifying. Meta is reportedly in talks to lease computing power to AI company Anthropic, adding another player to a field that already includes specialized AI cloud providers.
“As compute becomes more available and models become cheaper, cloud capacity may look increasingly interchangeable. That could force providers to spend more while accepting lower returns,” said Lale Akoner, global market strategist at eToro.
