Chamath flags a hidden risk building under the AI boom Faizan Farooque, Robert Davey Mon, November 2, 2026 at 11:33 AM EST 5 min read MSFT +0.30% META -0.72% GOOG +1.22% AMZN +4.54% Explore stocks on Coinbase Trading disclosure Trading disclosure The above button links to Coinbase. Yahoo Finance is not a broker-dealer or investment adviser and does not offer securities or cryptocurrencies for sale or facilitate trading. Coinbase pays us for certain activity generated through this link. Prices displayed are informational.
The largest IT businesses in America have the money to accomplish almost everything at once for many years.
According to conventional wisdom, Microsoft (MSFT), Meta Platforms (META), Alphabet (GOOGL) and Amazon (AMZN) could build data centers, repurchase billions of dollars of stock and still maintain some of corporate America's strongest balance sheets.
However, artificial intelligence is starting to test that paradigm.
According to billionaire investor Chamath Palihapitiya, the spending boom poses a less obvious risk. He said on the Oct. 30 All-In Podcast that technology companies may need outside capital to finance AI infrastructure, competing with the U.S. government, another huge borrower.
Palihapitiya estimates that the broader AI industry already owes roughly $340 billion to $400 billion to capital markets.
Even if demand for AI is still high, that is significant.
Big Tech is returning less to shareholders while investing more in infrastructure. Investors may need to pay considerably more attention to borrowing costs and free cash flow.
The quest to develop the greatest technology is no longer the main focus of the AI race. The issue of financing has taken over.
Microsoft, Alphabet, Amazon, Meta and Oracle generated a combined $542.9 billion in operating cash flow during the first nine months of 2026, according to Reuters.
Their capital spending doubled, reaching $556.9 billion, exceeding the cash flow the five firms generated for the first time, according to data going back to 2011.
The group's total stock buybacks dropped 83% to $13.6 billion. Microsoft accounted for the majority of the remaining buybacks at that time, while Alphabet and Meta did not make any repurchases.
This eliminates a long-standing financial windfall for investors. By lowering the number of outstanding shares, repurchases enable earnings per share to increase more quickly than overall profits.
"The entire United States economy is levered to the AI complex," Palihapitiya said.
AI is not necessarily a bad investment because of the enormous expenditure. In the end, stockholders may benefit if new infrastructure generates sufficient income and profit.
Reuters found the five companies swung from $143.5 billion of free cash flow a year earlier to a $14 billion deficit during the first nine months of 2026.
In exchange for possibly higher AI earnings in the future, investors are giving up some cash returns today.
Meta serves as an example of how soon investing on AI may put strain on even a solid balance sheet.
S&P Global Ratings changed Meta's credit outlook to negative on Oct. 30, citing rapidly increasing capital spending and uncertainty around future free operating cash flow.
Meta expects capital expenditures of $135 billion to $145 billion this year. S&P forecasts free operating cash flow deficits of $39 billion in 2026 and $71 billion in 2027 and expects the company could eventually use more debt to finance expansion.
Meta disagreed with S&P's evaluation and highlighted the commercial prospects brought forth by AI.
Whether Meta can afford its present buildout is not the issue. It is able to. How soon such investments begin to produce enough revenue to cover the expenditures is the issue.
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What happens when more AI businesses borrow is Palihapitiya's wider worry.
According to his projections, their funding requirements until the end of 2027 may account for almost 30% of the anticipated issuance of new U.S. Treasury notes and bonds during that time.
The exact proportion should be interpreted with caution since it is Palihapitiya's estimate rather than an official government measurement.
Many of the same investors provide funding to both corporations and the federal government. To attract capital, corporations may need to provide higher returns due to increased corporate borrowing.
This increases the required return on AI investments.
Microsoft provides an example of why the bearish case is still unresolved.
The most recent quarter growth of Microsoft's Azure of 48% indicates that the massive infrastructure buildout is supporting significant demand.
Investors in Big Tech must see AI-related revenue and profit growth that is fast enough to support the money going into processors, data centers, and electricity.
The strain on balance sheets and shareholder returns could lessen if Microsoft, Meta, Alphabet, and Amazon finally make money from AI more quickly than capital expenditure increases.
Palihapitiya's reasoning is more difficult to reject if expenditure keeps rising while debt rises and free cash flow declines.
Buybacks also provide another helpful hint. A steady increase in repurchases combined with ongoing AI investment would indicate that these businesses are once again making much more money than they need to finance growth.
Palihapitiya's reasoning differs from prior warnings about an AI bubble because of this.
The financial equation does not need to collapse for AI to become more challenging.
It only has to become much more expensive to fund.
Related: Microsoft is offering 60,000 employees a way out
This story was originally published by TheStreet on Nov 2, 2026, where it first appeared in the Investing section. Add TheStreet as a Preferred Source by clicking here.
