AI Capex Is Still Booming as Momentum Slows

Derivatives are a huge, complex issue.

– Judd Gregg, former U.S. senator

Judd Gregg was talking about financial derivatives, but accelerations and decelerations in growth rates can also help signal inflection points in markets. The AI boom now has a derivative of its own: the growth rate of capital expenditure (capex) across the hyperscaler group of Alphabet, Amazon, Meta, Microsoft and Oracle. The change in that growth rate is becoming as important as the spending itself. Capex rose from about $154 billion in 2023 to $239 billion in 2024, $412 billion in 2025 and an expected $760 billion in 2026. Spending is expected to keep rising after this year, but the annual growth rate is expected to decline from 84.7% in 2026 to 27.5% in 2027 and 7.4% in 2028. Capex remains on an upward path even as its second derivative turns negative after 2026. The expected deceleration arrives as hyperscaler spending approaches the point where it will no longer be comfortably self-funded.

The buildout could cross a financing threshold this year or next, when combined hyperscaler capex could exceed the group’s operating cash flow. Crossing that threshold would make the next stage of investment dependent on outside financing and leave less internally generated cash available as a cushion. That financing shift makes the deceleration more important because the marginal dollar of capex becomes sensitive to funding costs and market access.

This week, Alphabet offered an early example in its latest results, with about $39 billion of cash flow from operations, roughly $45 billion of capex and a free-cash-flow deficit of about $6 billion. That shortfall is notable for a firm that has generated significant free cash flow for years.

The financing burden extends beyond the cash flow statement. A Nikkei Asia article estimates that “hidden debt” across Alphabet, Amazon, Meta, Microsoft and Oracle had reached $1.65 trillion, above the roughly $1.35 trillion shown on their balance sheets. The estimate includes leases, data-center obligations and GPU supply contracts that do not appear in conventional debt totals but still form part of the financing structure behind the buildout. Nikkei Asia places Oracle’s “hidden debt” at about $273 billion.

Article: Five US tech giants' hidden debts soar to $1.65tn on opaque AI funding

Oracle shows how that financing pressure is reaching credit markets. A year ago, its five-year credit default swaps traded slightly inside the CDX NA IG index, at roughly 40 basis points (bps) compared with about 50 bps for the broader market. Oracle now trades near 214 bps versus approximately 54 bps for the index. The move from slightly inside the investment grade index to roughly 160 bps wider marks a sharp repricing of Oracle’s credit risk during a period when the financing needs of its AI buildout have expanded.

The AI buildout faces constraints in data-center capacity, power availability and chip supply, but financing capacity might ultimately determine its pace. Hyperscaler capex is still expected to rise toward $1 trillion, even as annual growth slows sharply after 2026. The pace of the next stage will increasingly depend on whether that funding remains available and affordable.

Between the Lines is a weekly blog by DoubleLine Portfolio Managers Sam Garza, Joseph Mezyk and Quant Analysts Fei He, CFA and Sunyu Wang that breaks down topical macro and market issues. For questions or suggestions please e-mail us at betweenthelines@doubleline.com. The views and opinions expressed herein are those of the authors and do not necessarily reflect the views of DoubleLine Capital LP, its affiliates or employees.