AI sore big tech cos’ artificial splurge eats into stock buybacks

Last quarter, Alphabet, Microsoft, Amazon.com and Meta Platforms spent the least on combined share repurchases than in any quarter since 2019, Bloomberg data shows. Alphabet and Microsoft spent roughly $11 billion on buybacks, while Amazon and Meta held off entirely. Amazon hasn’t bought back stock since 2022.

“There’s certainly a setup for an extended period of reduced share buybacks,” said Robert Schiffman, senior credit analyst at Bloomberg Intelligence. “I don’t think it’s because of a lack of financial flexibility, it’s just what are the best uses of capital.”

The shift from returning cash to shareholders to spending it on AI comes as investors grow increasingly skeptical about whether and when Big Tech‘s relentless outlays will deliver the promised payoffs.

Microsoft shares have plunged 17% and Amazon.com has lost 8% in the wake of earnings reports that revealed higher-than-anticipated spending and not enough anticipated revenue growth to justify it. Meta initially jumped on a strong sales forecast, but the stock has given up those gains and is now down 3.6% since the company’s earnings report.

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Even Alphabet, which is considered the clearest AI winner in the group, has fallen 9.1% since its results hit on Feb. 4.

For years, investors have been drawn to Big Tech’s ability to generate continual profit growth from strong revenues and limited spending. But the rush to expand computing infrastructure at all costs is upending that equation, with Alphabet, Microsoft, Amazon and Meta expected to spend more than $700 billion combined on capital expenditures this year.”In the history of the world, probably nobody has been able to make more money in asset-light businesses than these companies,” said Kim Forrest, chief investment officer at Bokeh Capital Partners. “They’re throwing that to the wind because they’re all caught up in some kind of race.”

The pile of money being thrown at AI-related infrastructure has investors looking more closely at the companies’ free cash flow, a metric that demonstrates how profits are being converted into capital. For years, Big Tech firms like Alphabet, Microsoft, Meta and Amazon have been steady generators of free cash flow, but as they commit to pouring money into capex, the numbers are expected to decline.

The combined free cash flow for Alphabet, Microsoft, Meta and Amazon is projected to fall 64% over the next four quarters to about $96 billion from roughly $270 billion in 2025.