Is the Economic Model of Major Technology Companies Changing?

This has been the case for companies such as Microsoft, Google, Meta, and Amazon, four giants of the U.S. market.

Another remarkable appeal of the business models of most technology firms is that they did not need to invest significant amounts in capital expenditures to grow. This is a considerable advantage that gives them great financial flexibility and a high return on invested capital.

Here are four examples:

Each of these companies has historically generated substantial and generally growing free cash flow, the only exception being Amazon, whose capital investments (cloud data centers and distribution warehouses) have been larger.

However, each of these companies has recently announced massive investments in their infrastructure to develop AI.

Thus, Microsoft announced that it would invest nearly US$80 billion over its next fiscal year (June 2026), mainly in data centers dedicated to AI. These investments had already begun during its last fiscal year, when it invested US$64.6 billion in 2025. Thus, the cumulative investments of 2025 and 2026 (US$144.6 billion) exceed those of the previous five fiscal years (from 2020 to 2024 inclusive, its investments totaled US$132.5 billion).

For its part, Google expects to invest around US$85 billion in capital expenditures in 2025, also citing strong demand for its cloud services dedicated to AI. This amount is roughly equivalent to the total of the last two fiscal years (US$52.5 billion in 2024 and US$32.3 billion in 2023).

Meta, for its part, announced investments of around US$70 billion in 2025, the majority of which will serve its AI efforts. These investments would be higher than what the company cumulatively invested over the last two fiscal years (US$37.3 billion in 2024 and US$27.0 billion in 2023).

Finally, Amazon announced that it would likely invest more than US$100 billion in 2025, the vast majority of which will be devoted to expanding its cloud capacity (AWS) for AI. This compares to US$63.6 billion in 2024 and US$52.7 billion in 2023.

I have no doubt that these companies can finance such investments: they enjoy strong balance sheets and generate substantial cash flows.

I do wonder, however, whether the return on such investments will be attractive in the coming years. Moreover, given the very rapid evolution of the chips used by data centers, it is likely that part of these investments will have to be repeated in a few years.

One thing, however, seems obvious to me: these companies are significantly changing their business model, moving from a model requiring little capital and infrastructure to one that appears to demand massive investments in infrastructure.

Philippe Le Blanc, CFA, MBA
Chief Investment Officer at COTE 100