Hyperscalers keep investing in capital spending despite shrinking free cash flow

Free cash flow is the money a company has left after paying for operations and capital investment. A café owner who generates 80 million won in operating cash and spends 20 million won on equipment and renovations has 60 million won left to take home. In corporate accounting, that remaining amount is free cash flow, or FCF.

The same calculation helps explain the contrasting reactions to the latest results from major U.S. technology companies. Microsoft said it generated $55.4 billion in operating cash flow from April through June and spent $35.8 billion on AI data centers, semiconductors and related investments. That left $19.6 billion in free cash flow. The company also spent $4.6 billion buying back shares and paid $6.8 billion in dividends.

Alphabet generated $39.1 billion in operating cash flow but spent $44.9 billion on capital investment, leaving it without free cash flow for the quarter. Unlike the second quarter of 2025, when it spent $13.2 billion on share repurchases, Alphabet could not return money to shareholders while its investment spending exceeded the cash it generated. Microsoft’s shares rose more than 15% on the earnings date, while Alphabet’s fell more than 7%. Alphabet later recovered its losses as investors focused on its strong results and future plans. Amazon also failed to generate free cash flow, but strong performance limited the reaction.

The companies’ heavy spending reflects the renewed growth of cloud computing and artificial intelligence. Microsoft Azure, Amazon Web Services and Google Cloud Platform together hold more than 60% of the global cloud market. They build and operate the equipment that businesses otherwise would have to finance and maintain themselves, offering software, platforms, infrastructure and other subscription services.

Cloud demand accelerated during the early-2020s pandemic as companies adopted remote and hybrid work. The AI market then expanded from the second half of 2023. In the latest quarter, Alphabet’s cloud revenue rose 82% from a year earlier, while Microsoft’s and Amazon’s increased 32% and 37%, respectively. Investment also surged: Microsoft and Alphabet raised spending by 110% and 100%, while Amazon’s capital investment increased 68%.

That spending reduces the hyperscalers’ free-cash-flow capacity, but it brings good news for Samsung Electronics and SK hynix. Much of the investment ultimately goes toward Nvidia graphics processors and memory chips. The columnist argues that continued AI growth and strong earnings could support renewed expectations for South Korea’s semiconductor-led stock market.