Nomura: AI investment squeezes tech giants’ cash flow: why Nomura favors memory chips

How intense is the cash pressure on tech giants?

In the third quarter of 2026, Meta’s free cash flow was negative 2.1 billion dollars, turning negative for the first time since its listing; Alphabet’s was negative 9.1 billion dollars, its second consecutive negative quarter. Microsoft’s remained positive at 18.6 billion dollars over the same period, while Amazon’s was negative 42.4 billion dollars over the past 12 months.
Nomura expects combined free cash flow at Microsoft, Alphabet, Amazon and Meta to fall from 289 billion dollars in 2025 to 135 billion dollars in 2026. Meta, Alphabet and Amazon have stopped share buybacks and broadened their funding sources through equity or debt.

None of the five companies covered in the report has provided a capital expenditure figure for 2027; they have only signaled that spending will continue to rise. Applying the 60% growth in global cloud providers’ capital spending suggested by SK Hynix to the four tech giants, Nomura calculates total spending of about 1.23 trillion dollars; the market was then expecting growth of 30%–35%.
Nomura assumes the four companies’ combined operating cash flow will rise 20% year on year in 2027: under the market capital spending scenario, combined free cash flow would be positive at about 67 billion dollars; under a scenario of 60% spending growth, it would turn negative at 144 billion dollars. The bank’s scenarios show that faster expansion would increase the need for debt and equity financing.
Investment appetite is also constrained by execution capacity. Third-quarter capital spending at Microsoft, Alphabet and Meta was below market expectations; Microsoft cited delays in third-party data center capacity delivery, and changes in lease classification also reduced reported capital spending, but its spending plans were unchanged. Nomura believes supply shortages in 2027 could widen the time lag between plans and execution.

Demand for cloud services continues to grow: combined third-quarter revenue at Microsoft Azure, Google Cloud and Amazon AWS rose 56% year on year to 109.9 billion dollars, and their combined order backlog totaled 1.82 trillion dollars. Operating margins at AWS and Google Cloud were 38.7% and 36.2%, respectively.
Project returns depend on the rental price of computing capacity. Assuming construction costs of 50 billion dollars per gigawatt and annual revenue of 19 billion dollars, Nomura estimates an internal rate of return of about 6%–15% under different AI business margins; if the current spot rental rate of 40 billion dollars per gigawatt per year holds for six years, the return could rise to about 13%–31%.
Investment also has a defensive motive: year-on-year growth in Google search revenue slowed from 17% in the second quarter to 12% in the third. Although query volume grew at its fastest pace in five years, Google’s own AI Mode reduced monetization per query; Nomura therefore sees AI spending as a tool for protecting existing businesses.

Nomura expects tech giants’ free cash flow shortfall to widen as investment rises over the next one to two years; by contrast, memory makers could increase shareholder returns over the next few years and continue to accumulate cash after returning capital to shareholders.
South Korea’s two largest memory makers, Samsung Electronics and SK Hynix, trade at expected 2027 price-to-earnings ratios of about 2–3 times, a discount of 85%–90% to the four tech giants’ average of about 20.9 times. Nomura believes this valuation treats current memory earnings as a cyclical peak; the bank expects supply shortages to persist through 2028, while more long-term supply agreements could also help extend the earnings cycle.
Tight supply and demand also impose costs downstream. Nomura says rising memory prices and supply shortages drove an approximately 20% decline in global PC shipments in the third quarter of 2026; Intel’s fourth-quarter revenue guidance was 15 billion–16 billion dollars, below market expectations of about 17 billion dollars.