Big tech’s fat profits conceal unsettling cashflows

Subscribe to enjoy similar stories.A chart is haunting Silicon Valley. The profits of big cloud-computing firms (Amazon, Google, Meta, Microsoft and Oracle) are rising inexorably. Yet the amount of cashflow they generate after capital spending is falling.

Sketched together, these soaring profits and diving free cashflows, which until recently rose in unison, resemble the gasps of the world’s investors.In short order America’s biggest companies have gone from printing money to burning it. Amazon, Meta and Microsoft are all expected by analysts to announce negative cashflows in at least one quarter this year. Alphabet, the parent company of Google, will just about keep its head above water.

Oracle, the weakest of the bunch, is already drowning.It does not take Poirot to work out what’s going on. This year the five firms will spend $800bn filling warehouses with computers to run artificial-intelligence models. These investments barely register on their profit statements, since assets depreciate only once built—and then only slowly.

Cashflow statements, though, are less susceptible to obfuscation. At around 40% of their revenues this year, the cloud giants’ capital expenditures will surpass those of the oil industry during the shale boom in the 2010s and the telecoms industry during the dotcom bubble in the 1990s.Arguments dismissive of the scale of big tech’s transformation have collapsed under the weight of the growing bill. Comparisons to the dotcom bubble are wrongheaded because the big spenders today generate ample cashflows, went one argument.

Not any more. Their cashflow pressures cannot be that great because firms are still buying back bucket-loads of their own stock, many said. During the most recent quarter,