Profits Rise but Cash Turns Negative: When Will Amazon, Meta, and Oracle Recoup Their AI Investments?

As of June 2026, Amazon reported a net profit of $135 billion on its income statement, achieving the highest operating profit margin in 40 quarters. During the same period, its free cash flow was -$7.6 billion, down from +$18.2 billion in the previous twelve months.

Free cash flow can be understood as the cash a company generates from its daily operations, minus expenses for purchasing servers and building data centers, leaving the actual cash on hand. While profits are rising, the remaining cash has turned negative. The issue lies in the different accounting methods for the two statements and the direction of spending: almost all of it has flowed into AI data centers.

Amazon is not an isolated case. Meta reported its first quarter of negative free cash flow since going public in the third quarter of 2026, Oracle's free cash flow for the entire fiscal year 2026 was -$23.7 billion, and Alphabet, Google's parent company, also turned negative for the first time in the second quarter. All these companies are experiencing business growth, yet cash is flowing out. The question of who will ultimately bear the cost of these investments and when the returns will come is a critical issue surrounding this round of AI investment.

$135 Billion on the Income Statement, -$7.6 Billion on the Cash Flow Statement

First, let's look at Amazon's cash accounts. In the past twelve months, its operating activities generated $161.4 billion in cash, a 33% year-over-year increase, indicating that the core business's ability to generate cash has not deteriorated. During the same period, the net amount spent on purchasing property and equipment was $169 billion, which is more than 60% higher than the $102.9 billion spent in the previous twelve months. With $161.4 billion coming in and $169 billion going out, the difference is the $7.6 billion shortfall.

Profits and cash are diverging, primarily due to accounting rules. When a server or a data center is purchased, the cash is paid in full at the time of purchase, but the income statement does not record this entire amount as an expense in the current period; instead, it is depreciated over its useful life. It's like a person who buys a car outright; their bank account decreases significantly on that day, but if they account for the car's price over the years, their "expenses" for that year appear minimal. Amazon's current situation is akin to buying many cars outright every quarter.

Management elaborated on this timing difference during the earnings call on July 30: the money for data centers must be invested two years before they can be filled with servers and start generating income; servers and network equipment are typically purchased a few months in advance, with a payback period of generally less than three years; the buildings for data centers can be used for over 30 years. Money goes out first, income comes later, and the costs on the income statement will be amortized further into the future.

The second reason is hidden in the net profit. In the second quarter, Amazon reported a diluted earnings per share of $5.75, which included a non-operating income related to its investment in Anthropic, estimated to be between $50 billion and $70 billion. This is a book gain recorded after re-evaluating the equity held, with no cash received. Excluding this item, the adjusted earnings per share for the second quarter was approximately $1.97, still above the market expectation of $1.81. Looking back at the past twelve months with the same logic, the $135 billion net profit minus this re-evaluation gain still leaves a core net profit of about $65 billion to $85 billion, indicating that the core business is indeed profitable, but all the earnings have been fully, or even excessively, reinvested.

The quarterly figures are even more illustrative. In the second quarter, Amazon's cash capital expenditures were $53.1 billion, exceeding AWS's revenue of $42.2 billion for the quarter, and more than three times AWS's operating profit of $16.6 billion for that quarter. Free cash flow has been negative for two consecutive quarters, with -$18.2 billion in the first quarter and -$8.82 billion in the second quarter.

It hasn't reached the peak yet. On July 30, Amazon raised its full-year cash capital expenditure guidance for 2026 from about $200 billion to about $220 billion, citing rising memory prices. This $220 billion is the annual plan, and the amount already spent in the first half is only part of it. CEO Andy Jassy stated in the same earnings call that free cash flow will remain under pressure until the new data centers open and the servers run for a few years.

The shortfall is being covered by borrowing. Amazon's long-term debt rose from $65.6 billion at the end of 2025 to $128.9 billion by the end of June 2026, having raised about $77 billion through bond issuance over the past year, with total debt including leases increasing from $134 billion to $223 billion. Interest expenses for the past twelve months were $3.33 billion, compared to $2.23 billion in the same period last year.

Meta: The First Quarter of Negative Cash Flow Since Going Public

Meta's third-quarter earnings report, released on October 21, showed that its business performance was nearly flawless. Revenue reached $64.6 billion, a 26% year-over-year increase; advertising revenue was approximately $63.1 billion, also up 26%, with a 10% increase in ad impressions and a 14% increase in average prices; the total daily active users across its applications reached 3.64 billion.

However, the profit side looks much worse. The operating profit for the quarter was approximately $13 billion, down 37% year-over-year, with the operating profit margin dropping from 40% to 20%. This included a one-time expense: Meta reached a settlement with several state attorneys general regarding youth safety issues, incurring $9.89 billion in legal settlement costs for the quarter, with a total payment cap of approximately $18.6 billion. As a result, the net profit was only $9.86 billion, with a GAAP earnings per share of $3.83; excluding the settlement costs, it was $7.40.

The real change is in the cash flow statement. In the third quarter, Meta's operating cash flow was $32.79 billion, while it spent $33.94 billion on property and equipment, equivalent to 104% of its operating cash flow. Including principal repayments for financing leases, capital expenditures reached $34.91 billion, accounting for 54% of the quarter's revenue. For every $100 earned, $54 was reinvested into servers and data centers. The free cash flow for the quarter was -$2.12 billion, compared to +$10.63 billion in the same period last year.

This marks the first time Meta has reported negative free cash flow in a single quarter since going public in the second quarter of 2012. The total for the first nine months still stands at $11.05 billion, but this is a 63% decrease year-over-year.

On the balance sheet, as of the end of September, Meta held $82.45 billion in cash and securities, with long-term debt of $80.92 billion, compared to only $58.7 billion at the end of 2025. After offsetting these amounts, the net cash is only about $1.5 billion. The $1.36 billion dividend paid during the quarter was effectively drawn from reserves. The earnings report also listed $454.52 billion in irrevocable contract commitments, which are payments already signed and must be fulfilled in the future.

Meta's income statement also underwent an adjustment that would further widen the gap between book profits and cash. The company extended the depreciation period for servers and network equipment from 4 years to 5.5 years, resulting in a reduction of $2.9 billion in depreciation for 2025 alone. With the same batch of equipment being depreciated over a longer period, the annual cost recorded is lower, making profits appear better, but cash remains unchanged. Meanwhile, the pace of spending is accelerating. According to the earnings call, Meta adjusted its full-year capital expenditure guidance for 2026 to $135 billion to $145 billion (including principal payments for financing leases), raising the lower limit by $5 billion. In the first three quarters, Meta has already invested $85.82 billion, and according to Benzinga's estimates, it will need to invest another $49.18 billion to $59.18 billion in the fourth quarter.

Oracle: The Most Orders, the Most Borrowing

If Amazon and Meta are earning a lot from their core businesses but investing even more, Oracle is facing a significant cash shortfall for its investments. As of the middle of fiscal year 2026, Oracle's operating cash flow was $31.977 billion, while capital expenditures were $55.663 billion, making capital expenditures 1.74 times the operating cash flow, resulting in a free cash flow of -$23.7 billion for the entire year.

To cover the shortfall, Oracle issued $43 billion in bonds during this fiscal year and raised $20 billion through a market-priced stock offering.

Entering fiscal year 2027, the pace has not slowed. In the first quarter ending August 31, 2026, Oracle reported revenue of $19.35 billion, with capital expenditures of $28.5 billion, a year-over-year increase of 235%. Operating cash flow also grew rapidly to $23.1 billion, a year-over-year increase of 184%, but it still could not keep up with capital expenditures, resulting in a free cash flow of -$5.4 billion for the quarter, compared to -$362 million in the same period last year.

Oracle's total debt is approximately $155.9 billion, with an additional $30.6 billion in capital lease obligations. Quarterly interest expenses increased by 55% year-over-year, reaching $1.43 billion. According to the company's plan, it will need to refinance about $40 billion in fiscal year 2027, with both debt and equity, and the full-year capital expenditure guidance is set at $90 billion to $95 billion, with net cash capital expenditures not exceeding $70 billion after accounting for customer prepayments and other factors. These are still projected figures, with $28.5 billion already spent in the first quarter.

Microsoft Remains Positive, Google Turns Negative and Sells Stocks

Similarly investing heavily in AI, Microsoft is the only major cloud provider among these companies that still has positive free cash flow. In the fourth quarter of fiscal year 2026, which ended in June 2026, Microsoft reported operating cash flow of $55.4 billion and capital expenditures of $35.8 billion, resulting in free cash flow of +$19.6 billion.

For the entire year, Microsoft reported operating cash flow of $182.9 billion and capital expenditures of approximately $175 billion, with capital expenditures accounting for 96% of operating cash flow, still within the range covered by its core business cash. This figure needs to be viewed with caution: Microsoft reclassified part of its financing leases as operating leases, resulting in capital expenditures being adjusted down by about $15 billion from approximately $190 billion. Based on the pre-adjustment figures, capital expenditures would exceed operating cash flow by about $7 billion. The margin for Microsoft is thinner than it appears.

Microsoft's greater confidence comes from the structure of its spending. CFO Amy Hood stated, "If the demand environment changes, you only need to slow down the largest portion (short-lived chips)." Chips need to be replaced every few years, and procurement can be adjusted quarterly; once a data center building is under construction, it is difficult to halt. Microsoft has focused its spending on areas where it can easily apply brakes, effectively giving itself a valve for adjustment.

Alphabet, on the other hand, has crossed that line. In the second quarter of 2026, it reported operating cash flow of $39.1 billion and capital expenditures of $44.9 billion, resulting in free cash flow of -$5.86 billion, marking the first time since its IPO in 2004 that it has turned negative.

The methods used to cover the shortfall are also telling. Since June 2026, Alphabet has raised approximately $84.75 billion through equity financing, including a $10 billion private placement from Berkshire; long-term debt rose from $46.5 billion to $98.2 billion; and stock buybacks have been suspended. Over the past decade, Alphabet has repurchased over $346 billion of its own stock, and now it is selling stocks instead.

Putting several companies together, calculating the ratio of capital expenditures to operating cash flow based on their latest reporting periods: Amazon has 105% over the past twelve months, Oracle 174% for fiscal year 2026, Alphabet 115% for Q2 2026, Meta 104% for Q3 2026, and Microsoft 96% for fiscal year 2026. Except for Microsoft, the cash generated from core operations is insufficient to cover AI bills. J.P. Morgan estimates that AI capital expenditures account for 93% of the operating cash flow of major cloud vendors, up from 33% in 2023.

Evidence of Returns Mostly Comes from the Sellers of Computing Power

Money has been spent, but where are the returns? From the perspective of those selling computing power, the evidence is quite strong.

AWS reported revenue of $42.2 billion in Q2, a year-on-year increase of 36.7%, marking the fastest growth in 18 quarters; operating profit was $16.6 billion, up 64%, with an operating margin of about 39%. Management stated that AWS has signed but not yet fulfilled orders totaling $496 billion, up from about $244 billion at the beginning of the year, more than doubling in six months, with most AI capacity signed under long-term contracts of over five years. Based on AWS's quarterly revenue, these orders could sustain it for about three years.

Jassy mentioned on the earnings call that capacity for 2027 is nearly fully booked, and demand for 2028 capacity is "already remarkable"; even with an investment of $220 billion, it would not meet the demand for 2026, and the same is expected for 2027.

Oracle's order numbers are even larger. The backlog of orders stands at $664 billion, an increase of $209 billion in one year, with management expecting about half to convert to revenue in the next 36 months. In Q1 of fiscal year 2027, Oracle signed over $30 billion in new AI contracts, many structured with customer prepayments or "customer-supplied hardware," meaning customers pay upfront or buy their own chips, while Oracle provides the data center and operations, alleviating its financial pressure. In that quarter, Oracle's cloud infrastructure revenue grew by 121% year-on-year, delivering 850 megawatts of computing power and over 300,000 GPUs, with a GPU utilization rate of 97.9%, and prices increased by 20% upon renewal.

Oracle's CFO Hilary Maxson believes that each data center project "is essentially a strong free cash flow generating project," and after ramping up capacity, free cash flow could reach about 100% of post-tax EBITDA. According to her, today's negative cash flow is the cost of the construction phase, and once the project is operational, it will turn into cash.

There are two limitations to this evidence. Orders are not cash. AWS's $496 billion will take several years to convert into revenue, while the $53.1 billion in quarterly capital expenditures already exceeds AWS's quarterly revenue by 1.26 times, indicating that the pace of investment is still faster than the pace of order fulfillment.

Orders also rely on timely delivery to be fulfilled. According to Bloomberg, Oracle has issued a force majeure notice to the development entity associated with Blue Owl regarding Project Jupiter in New Mexico. This is a $165 billion data center park, aiming to be powered by March 2028, and the notice indicates that if the project is not completed on time, Oracle can defer rent payments. Oracle claims the project is still on schedule, while Blue Owl states that this notice does not change its financial commitments. A legal notice about "what if it’s late" itself indicates that all parties are reserving a fallback for delays.

Another layer is the flow of money in the industry chain. A significant portion of Amazon's net profit over the past twelve months comes from the revaluation of its investment in Anthropic, while the valuation of the model company is based on its future revenue and financing capabilities. According to Reuters, Anthropic's prospectus shows that the company commits to spending at least $110 billion on AWS from May 2026 to April 2036, regardless of actual usage, with any unused amount needing to be compensated. Reuters points out that Amazon and Google are both significant shareholders of Anthropic and its computing power suppliers: large tech companies invest in AI developers, who then purchase computing power from these investors, linking equity investment and business revenue. When orders and investment returns come from the same group of buyers, the prosperity on the supply side can primarily prove the demand among these companies.

The Final Buyers Have Yet to Calculate the Bill

The ultimate buyers of computing power are ordinary businesses looking to improve operations with AI. So far, the numbers on this side are much colder.

Torsten Slok, chief economist at Apollo Global Management, provided a direct judgment in a report released on October 24: AI has brought "zero financial returns" to companies outside the U.S. tech industry. His basis is two sets of comparisons. The average revenue per employee of seven tech giants rose from about $550,000 in 2022 to nearly $800,000, while the remaining 493 companies in the S&P 500 have hovered around $550,000 since 2019. Profit margins are similar; tech giants have begun to rise since Q3 2023, while other companies remain flat at about 10%.

Slok further stated: "Mainstream American companies are contracting, starting to view token spending as a cost center that drags down profit margins rather than a source of growth." "The AI story will ultimately be decided among the S&P 493, not the Magnificent Seven." Tokens are the basic units of billing for large models, with companies paying based on usage; the more they use, the higher the bill.

A specific action has emerged at Accenture. The consulting firm has limited employee spending on Claude to $29 per month as of October 2026.

Survey data presents the same gap: a general sense of efficiency, but scarce financial results. In a 2026 survey by McKinsey, 80% of respondents stated that AI has improved personal productivity, but only 37% said it has had at least some impact on EBITDA. In Deloitte's survey, two-thirds of companies reported efficiency improvements, but only 20% said AI has boosted revenue.

Employees feel they are working faster, but this is rarely reflected in financial statements. The $496 billion and $664 billion orders from cloud vendors ultimately rely on these companies to continue paying to digest them. If more companies set limits on AI spending like Accenture, the demand chain behind the orders will begin to tighten from the very end.

Depreciation, Interest, and Rent Will Press Down Around 2027

Currently, several companies' profit statements look good, partly because a large amount of newly purchased equipment has not yet fully entered the depreciation cycle, and some leases have not yet begun payments. These costs will not disappear; they are just not due yet.

Depreciation is the first layer. Servers and network equipment have a payback period of less than three years, which means they will need to be replaced in a few years, while the data centers supporting them have a lifespan of over 30 years. The lifespan of these two types of assets differs by ten times, yet the funding behind them largely comes from longer-term debt. Meta has extended the depreciation period for servers to 5.5 years, pushing the accounting pressure back, but whether the equipment can truly last for 5.5 years depends on the speed of chip upgrades. Equipment purchased intensively in 2026 will continue to be depreciated in the following years.

Interest is the second layer. Amazon's interest expenses over the past twelve months increased by $1.1 billion compared to the previous year, while Oracle's quarterly interest grew by 55%. Both are still issuing bonds, with Oracle planning to refinance about $40 billion in fiscal year 2027.

Rent is the third layer, and also the easiest to overlook. Oracle's data center leasing commitments of about $288 billion have not yet begun payments, not counted in the balance sheet, which is about 1.54 times the on-balance debt of about $186.5 billion (with $155.9 billion in debt plus $30.6 billion in capital lease obligations). These rents will only start to be paid after the data centers are delivered, and projects like Project Jupiter aim for delivery around 2028. By then, when rent starts to flow out, if the projects are launched simultaneously, it can be converted into cash as Maxson said; if delivery is delayed or customer demand changes, Oracle will face a long-term expenditure that has already been locked in.

The bond market is already pricing this risk. According to ICE Data Services, the cost of credit default swaps for Meta's five-year bonds, which insure against bond defaults, has risen to a record high of about 114.79 basis points. Goldman Sachs data shows that the yield spread for newly issued bonds related to AI is about 115 basis points, while the overall investment-grade bond yield spread is about 78 basis points. For investment-grade companies, those associated with AI have to pay more interest.

Several figures will continue to change. Amazon's revaluation gains from Anthropic are only in a range of about $50 billion to $70 billion, with the Q3 financial report expected to be released on October 29, updating the profits and cash flows from the past twelve months.

According to Jassy's timeline, free cash flow will only improve after new data centers open and servers run for a few years. He mentioned that the demand for capacity in 2028 is "remarkable," and Oracle's largest park has also set its power-on target for March 2028. By then, how much of the cloud vendors' orders will be fulfilled will depend on whether the S&P 493 companies have made money from AI. Currently, Accenture's limit for each employee is $29 per month.