Tech stock investors have a $1 trillion problem that won't improve until at least 2028

Goldman Sachs strategist Ben Snider reports that consensus estimates for 2027 hyperscaler capital expenditures have surged by over $100 billion to more than $1 trillion (33% annual growth) since the start of earnings season, while 2026 estimates rose by $36 billion. Meta raised its 2026 capex range to $135-$145 billion, and Alphabet raised its full-year guidance to $195-$205 billion, with both companies signaling further increases for 2027, yet capex is expected to exceed cash flow from operations from 2026 through 2028, pressuring tech stocks.

Tech investors hoping for less robust AI spending may have to wait until 2028 before the fog begins to lift on this balance sheet line item. Quick analysis: Consensus estimates for 2026 hyperscaler capital expenditures have been raised by a modest $36 billion since the start of the reporting season, according to new research from Goldman Sachs strategist Ben Snider. But 2027 capex estimates have jumped from $929 billion 23% annual growth to over $1 trillion 33% annual growth over this period. This is more than $100 billion above estimates heading into the quarter, Snider pointed out. What's more, capex stands to exceed cash flow from operations from 2026 through 2028. The finer details: The reaction to large-scale capex by the hyperscalers has been rough for the bulls. Meta META https://finance.yahoo.com/quote/META/ raised the bottom end of its 2026 capital expenditure target, tightening the full-year spending range to $135 billion to $145 billion up from $125 billion to $145 billion . But specifics about 2027 capital expenditures were nonexistent. "We aren't providing a specific outlook for 2027 capex at this time," Meta CFO Susan Li told analysts on a late-Wednesday earnings call. "Infrastructure planning remains highly dynamic. Even this year, there are a range of outcomes embedded in our outlook." Meta's stock is down 7% over the past five days, and 14% for the year, per Yahoo Finance AlphaSpace https://finance.yahoo.com/about/promos/gold/alphaspace?100003557 data. Alphabet's second quarter capital expenditures https://finance.yahoo.com/video/earnings-negative-cash-flows-make-big-tech-more-economically-sensitive-140918058.html came in at $44.9 billion, slightly above Wall Street forecasts of $44.7 billion. Full-year capex guidance was raised to $195 billion to $205 billion from $180 billion to $190 billion, with a "significant" increase seen for 2027, executives said on the earnings call. Shares of Alphabet were crushed in response to its earnings report. The bottom line: Free cash flow is king for the hyperscalers right now, and only Microsoft MSFT https://finance.yahoo.com/quote/MSFT/ has a good story to tell there in the near term. Brian Sozzi is Yahoo Finance's Executive Editor, host of the ' Power Players With Brian Sozzi' podcast and a member of Yahoo Finance's editorial leadership team. Follow Sozzi on X @BrianSozzi , Instagram , and LinkedIn . Tips on stories? Email brian.sozzi@yahoofinance.com. Click here for in-depth analysis of the latest stock market news and events moving stock prices Read the latest financial and business news from Yahoo Finance