Big Tech's AI infrastructure spending is consuming most of their operating cash flow, squeezing free cash flow even as stock valuations surge

Alphabet, Microsoft, Amazon, and Meta are pouring more money into data centers, chips, servers, and power infrastructure for AI. Amazon is spending nearly all of its operating cash flow on capital expenditures, while Meta and Alphabet are not far behind.

Capital expenditures (long-term investments in the business) now take a much larger share of cash generated from day-to-day operations. If this ratio exceeds 100%, it means capital spending is bigger than the cash coming in from the core business.

Alphabet's forward price-to-free-cash-flow multiple has surged above 200x as investors pay for AI upside while expected free cash flow gets squeezed. Free cash flow is the cash left after a company funds the business and pays for long-term investments.