AI Is Eating Big Tech’s Free Cash Flow: Why Microsoft and Oracle Face Different Risks
A financial analysis published on July 22, 2026, examines how the AI boom is straining the free cash flow of major tech companies, particularly Microsoft and Oracle. Reuters reported that five hyperscalers are expected to spend more on capital expenditures than they generate in combined free cash flow by 2027. Microsoft's fiscal Q3 showed stronger free cash flow of $15.8 billion despite heavy capex, with its AI business reaching a $37 billion annual revenue run rate. The key risk for Microsoft is whether Azure and Copilot can generate sufficient returns before GPUs depreciate. Oracle faces a more immediate cash problem, spending $55.7 billion on capex against $32 billion of operating cash flow in fiscal 2026, resulting in negative free cash flow of $23.7 billion. Oracle plans to raise $45-50 billion through debt and equity to fund capacity construction. Short interest data shows bears are more willing to challenge Oracle, with its short interest rising to 2.47% of float versus Microsoft's 1.20%.
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