Major technology companies are planning significant increases in capital expenditures this year, a move that is projected to nearly deplete the free cash flow of Amazon, Alphabet (Google), and Meta Platforms. This financial pressure will likely force some of these corporations to make difficult decisions, such as halting share buybacks or increasing their debt levels.
A positive aspect is that these tech giants possess the capacity to raise additional debt by hundreds of billions of dollars, far exceeding their current debt obligations. In recent years, most major tech firms have initiated returning cash to shareholders through dividends and stock buybacks, with Alphabet and Meta being prominent examples of companies employing both strategies. However, sustaining these programs in the current year may prove challenging, as capital expenditures aimed at expanding artificial intelligence computing capacity are expected to consume almost all the cash generated from their business operations.
Alphabet and Meta have already begun scaling back their stock repurchase programs. Conversely, eliminating dividend payments presents a more complex issue. Both companies introduced dividends for the first time in 2024, a move that significantly enhanced their appeal to investors.
Amazon finds itself in a different position: the company has not repurchased any shares since 2022 and has never paid a dividend. However, according to S&P Global Market Intelligence, Amazon's planned capital expenditures for this year reach $200 billion, surpassing analysts' estimated operating cash flow of $178 billion. This indicates that, unlike its peers, Amazon is certain to experience a cash outflow this year.
In November last year, Amazon issued $15 billion in bonds to bolster its cash reserves. As of December 31, it held $123 billion in cash, providing a substantial buffer. Nonetheless, reports suggest Amazon is currently in talks to invest tens of billions of dollars in OpenAI, which would substantially reduce its cash holdings. Last Friday, Amazon filed a registration statement with the U.S. Securities and Exchange Commission, granting it the ability to issue debt quickly, signaling potential plans for further borrowing.
Microsoft's situation differs, as its capital expenditure expansion is considerably less aggressive than that of the other companies. In the first half of its 2026 fiscal year (ending June), Microsoft's capital expenditures were $49 billion, while its operating cash flow during the same period was $80 billion, easily covering the costs. Analysts surveyed by S&P Global Market Intelligence estimate Microsoft's full-year FY2026 capital expenditures at $103 billion, with free cash flow still projected to be $66 billion, representing only a slight decline from FY2025. Microsoft has indicated that capital expenditure growth in FY2026 will exceed last year's rate (FY2025 saw a 45% increase to $65 billion), but unlike other firms, it has not disclosed a specific full-year capital expenditure figure.
Although Microsoft is likely to continue generating substantial free cash flow, it faces a unique constraint: a significant dividend commitment. The company paid $24 billion in dividends last fiscal year and has already increased its dividend payout by 10% this year.
In comparison, Meta and Alphabet paid dividends of $5 billion and $10 billion, respectively, last fiscal year. Theoretically, both companies could still afford these payments this year, though Meta's financial pressure is expected to be more acute. The parent company of Facebook spent $26 billion on stock buybacks last year, slightly down from 2024. However, with free cash flow anticipated to shrink considerably this year, its buyback program is likely to be sharply reduced.
Similar to Amazon, both Meta and Alphabet issued bonds last year to strengthen their cash reserves. All three companies still have considerable remaining debt capacity. For instance, credit rating agency S&P stated last November that Alphabet's superior AA+ credit rating would only face potential downgrade if its net debt were to rise above $200 billion. Currently, Alphabet's debt stands at just $47 billion, and it holds $127 billion in cash, meaning it currently has no net debt.
S&P data shows analysts project Alphabet's 2026 EBITDA to be $218 billion. Theoretically, if Alphabet were willing to accept a credit rating downgrade, it could potentially borrow up to twice that amount, or approximately $400 billion.
Oracle is an example of a company that has already leveraged its balance sheet significantly to expand its AI computing capabilities. As of November 30, Oracle's net debt was approximately $88 billion, which is more than double analysts' estimated EBITDA of $35.5 billion for its 2026 fiscal year. Oracle is currently raising $45 to $50 billion through bond and stock issuances to fund its data center expansion projects.
Despite being in a cash-consumption mode, Oracle still plans to pay $5.7 billion in dividends this year. Investors have responded negatively to this strategy: Oracle's stock price has declined 27% year-to-date.
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