Google parent Alphabet, Amazon, Meta and other U.S. big tech corporations have jumped into an unprecedented race to invest in artificial intelligence (AI). The total amount these corporations are expected to put into chips and data centers this year is $660 billion (about 8.8 trillion won), drawing evaluations that this is the largest technology investment since the advent of the internet.
The problem is that the pace of investment is outstripping the ability to generate cash. On the 8th (local time), the Financial Times (FT) of the United Kingdom reported that even the world's most profitable corporations are seeing capital expenditure exceed operating cash flow, prompting analysis that management is being forced to choose among reducing shareholder returns, drawing down cash reserves, or taking on additional borrowing and equity issuance.
In the past two weeks, Alphabet, Amazon and Meta have rolled out back-to-back large-scale AI investment plans, stirring the market. In Silicon Valley, expectations are growing that Generative AI will be the biggest wave of innovation since the internet, but investors expressed concern about when such large expenditure will turn into revenue. In fact, in recent days, major tech stocks plunged as the burden of capital expenditure came to the fore, with only some names rebounding.
JPMorgan projected that technology and media corporations will issue at least $337 billion (about 489 trillion won) of investment-grade corporate bonds this year, saying the current AI investment race is directly affecting the bond market. TD Securities also said there is a high possibility of jumbo bond issuance centered on Amazon, Meta and Alphabet, and predicted the issuance volume could reach twice the usual level in a short period.
Amazon suggested in a recent filing with the U.S. Securities and Exchange Commission (SEC) the possibility of raising additional funds through liability or stock issuance, but did not disclose specific plans. After the filing, Amazon shares fell more than 5% in a single day. According to S&P Capital IQ, a financial information company, capital expenditure by these corporations this year is about $200 billion (about 293 trillion won), which is likely to exceed the estimated operating cash flow of $180 billion (about 263 trillion won).
Oracle recently issued $25 billion (about 36 trillion won) in corporate bonds to invest in AI infrastructure, which, coupled with its long-term contract to provide massive computing resources to OpenAI, heightened investor concerns. Global investment bank BNP Paribas said free cash flow at Oracle, Alphabet, Amazon and Meta is deteriorating rapidly, and that for now only Microsoft is relatively maintaining financial capacity.
Experts noted, "Big tech corporations are moving away from the 'asset-light model' they have maintained and shifting to a capital-intensive structure that requires massive capital investment in facilities." In this process, expanding liabilities and reducing share buybacks may become unavoidable, and some analysis said this could lower shareholder returns in the short term.