Tech companies are making record amounts of money, posting major gains in the most recent quarter compared to the same period just a year ago.
But despite all that income, these same companies are struggling to save any cash left over thanks to unfathomably huge AI-related expenses, a trend that could imminently put them firmly in the red.
As the Washington Post reports, the situation is about to go from concerning to potentially catastrophic. According to data compiled by S&P Global Market Intelligence, free cash flow — the amount of cash that remains after expenses — is about to drop off a cliff for the five leading AI companies, including Google, Meta and Oracle, after sinking to just above zero for the year.
In 2027, cash flow is expected to slide to a stunning negative $125 billion for those five companies alone, a shocking illustration of how far executives are willing to stretch themselves to keep up in the ongoing AI race.
Worse yet, S&P’s analysis predates the latest second quarter earnings. Both Amazon and Google announced last month that they’re looking to dig even deeper into their pockets for AI, news that didn’t impress already-shaken investors.
Elon Musk’s SpaceX is expected to announce its second quarter results later today, following two months of volatility after its blockbuster IPO. The stock is down nearly 30 percent from the company’s market debut in June and 50 percent compared to its all-time high the same month.
Like its fellow tech giants, SpaceX has ramped up AI spending considerably after merging with Musk’s AI startup xAI.
Whether the industry will be able to escape the spending binge isn’t guaranteed. Some experts say AI is a dead end. Promised gains in productivity have also turned out to be majorly exaggerated, at least so far. Companies are also struggling to convince enterprise clients to keep paying steeply rising prices as the true costs of AI tools become harder to ignore.
The tech has become a major headache for consumers, with spiking prices for electricity and electronics. The opposition to AI data centers has ballooned into a major bipartisan issue. And if the AI bubble were to pop, many everyday people’s retirement savings could be dragged down with it.
In short, tech companies have a lot left to prove — and that’s putting it lightly. They’re willing to put their companies’ very existence on the line by investing steeply in AI, a bet that has never looked riskier.
More on AI spending: Mark Zuckerberg’s Pivot to AI Is Blowing Up in His Face Spectacularly