Why are AI giants experiencing a decline in free cash flow despite record profits? JPMorgan Chase points out a significant divergence between the profitability and free cash flow of AI giants. Large-scale cloud service providers, such as Google, Amazon, Microsoft, and Meta, have seen their net profits rise to approximately $599 billion over the past 12 months, but their free cash flow, excluding capital expenditures, is only about $169 billion, a gap widening to $430 billion. At the end of 2023, both net profit and free cash flow were around $240 billion.
The reason is not a weakening demand for AI, but rather the faster growth in capital expenditures.
JPMorgan Chase predicts that AI-related capital expenditures will reach approximately $900 billion in 2026 and exceed $1.2 trillion in 2027. A large amount of new cash is being reinvested in data centers, servers, GPUs, and network infrastructure, resulting in a temporary inability to translate profit growth into readily available cash.
However, it is worth noting that AWS, Azure, and Google Cloud revenue and orders are still growing rapidly, indicating that the monetization of AI is improving.
JPMorgan Chase predicts that, apart from Microsoft, most of the large-scale cloud service providers it covers will continue to face pressure on free cash flow in 2026-2027.
