Big Tech buybacks slump as AI spending outpaces cash generation

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Big Tech buybacks slump as AI spending rises

Highlights

Microsoft, Alphabet, Amazon, Meta, and Oracle return just 9.3% of cash via dividends and buybacks in 2026, down from 27.4% a year earlier.
The group posts a combined free cash flow deficit of $14 billion versus a $143.5 billion surplus a year earlier as AI-driven capital spending doubles to $556.9 billion.
Buybacks fall 83% to $13.6 billion, with Alphabet and Meta ceasing repurchases, while total payouts of $50.6 billion rely on reserves, debt, or share sales amid negative cash flow.

AI investment reshapes cash allocation

As reported by Reuters, a review of LSEG data and company financial reports shows Microsoft, Alphabet, Amazon, Meta and Oracle return just 9.3% of the cash generated by their businesses through dividends and buybacks in the first three quarters of 2026, down from 27.4% a year earlier.

Operating cash flow rises 29% from a year earlier to a record $542.9 billion, but capital spending tied to the AI buildout doubles to $556.9 billion. That marks the first time since at least 2011 that the five companies' capital spending exceeds the cash they generate from operations.

The shift leaves the group with a combined free cash flow deficit of $14 billion, compared with a surplus of $143.5 billion a year earlier. Buybacks bear the brunt of the squeeze, falling 83% to $13.6 billion from $81.8 billion, while dividends increase to $37 billion from $33.9 billion.

Alphabet and Meta do not repurchase any shares in 2026 after buying back $66.5 billion in the first nine months of the prior year. Amazon pays no dividend and has not repurchased stock since 2022, while Microsoft accounts for nearly all remaining buybacks and reduces its repurchases to $4.4 billion in the September quarter from $5.7 billion a year earlier.

Pressure builds on valuations and funding

With combined free cash flow negative, the five companies' $50.6 billion in payouts is effectively financed through cash reserves, borrowing or share sales rather than post-investment cash generation. Amazon's third-quarter capital spending reaches $75.9 billion, almost 80% above the $42.4 billion generated by its operations, and the company raises $48.1 billion in long-term debt during the quarter.

Alphabet also posts negative free cash flow and raises about $12.4 billion from share sales and $29 billion from debt. The decline in buybacks matters beyond the headline dollar amount because share repurchases have supported earnings per share for years by reducing share counts.

ING says Alphabet cuts its share count by 9.5% between the end of 2020 and 2025 through buybacks, adding roughly 2% a year to earnings per share even without profit growth. As depreciation charges on new data centres rise, investors are becoming more dependent on actual profit growth to support valuations.

That pressure is significant for the wider market because technology and communication services stocks account for about 43.5% of U.S. market value. MSCI finds those sectors deliver a shareholder yield of just 0.28% in July, versus 1.99% for the rest of the market, while Amazon says it still expects about $220 billion of capital spending this year and peers also signal further increases.

Our earlier article on the U.S. AI data center boom examined how surging buildout costs, construction delays, and power constraints are turning a $10 trillion expansion plan into a tougher financing challenge. We noted that a growing share of projects has been postponed or scaled back as capital becomes harder to secure, while local opposition and grid limitations add further friction. The key takeaway was that the debate is shifting from AI demand to whether developers can execute on time and deliver sustainable returns without eroding investor confidence.

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