Tech giants' AI spending strains core businesses as free cash flow turns negative

Tech giants are reporting negative free cash flow as they pour trillions into artificial intelligence infrastructure, straining their core businesses like advertising, software, and e-commerce. Meta, Alphabet, and Amazon all posted negative free cash flow this quarter, while Microsoft's cash generation fell 27% to $18.63 billion. Meta's negative free cash flow hit $2.12 billion, Amazon's outflows reached $42.4 billion, and Alphabet's totaled $9.07 billion. Amazon's online sales growth slowed to 2% year over year, missing estimates, while Alphabet's search business saw a third straight quarter of decelerating growth. Microsoft plans to turn to the bond market to fund continued AI spending. Investors are showing nervousness, with Alphabet suffering its steepest drop ever and Meta shares falling 7% despite beating revenue. However, some analysts argue the tech giants' dominant legacy businesses can support the spending, noting Alphabet's operating income topped $40 billion this quarter, making its negative cash flow relatively small.