Hidden Concerns Beneath the AI Frenzy

AI frenzy has been there for more than 3 years, however, there are lots of hidden concerns beneath the AI frenzy.

Table of Contents

Shocking Data

Data shows that since the first quarter of 2023, investment in information processing equipment in the United States has grown by 23% after adjusting for inflation, while total US gross domestic product (GDP) has only grown by 6% over the same period. In the first half of 2025, information processing investment accounted for more than half of the 1.2% overall US GDP growth.

A Disturbing Side

A closer look reveals a disturbing side to the AI boom: all the spending on chips, data centers, and other AI infrastructure is draining the cash reserves of American companies. This may highlight the hidden risks of the AI boom—while no one doubts AI’s potential to boost growth and productivity in the long term, the massive financing supporting this boom could put pressure on companies and the capital markets.

Asset-Light Companies Become Cash Generators

Wall Street favors asset-light companies. For years, a major reason investors have favored these companies has been their “asset-light” nature—tech giants generate profits through intangible assets such as intellectual property, software, and digital platforms with “network effects.” From 2016 to 2023, US tech giants clearly achieved the dual goals of being both asset-light and cash-generating machines—Alphabet, Amazon, Meta, and Microsoft saw their free cash flow and net income grow roughly in tandem during this period.

The trend is changing

This trend is best reflected in the metric “free cash flow”—roughly defined as cash flow from operating activities less capital expenditures, excluding items such as non-cash impairment charges that can distort net income. It is perhaps the purest measure of a company’s intrinsic cash generation capacity.

However, since 2023, the two have begun to diverge significantly. According to FactSet data, during this period, the combined net income of these four companies increased by 73% compared to two years prior, to $91 billion, while free cash flow decreased by 30% to $40 billion. Despite Apple’s relatively conservative capital expenditures, its free cash flow has also begun to lag behind its net income growth.

For example, Meta’s second-quarter 2025 earnings report showed a 36% increase, but its free cash flow decreased by 22%. Amazon began to reduce the scale of its fulfillment center (automated logistics facilities) construction in 2022, allowing its free cash flow to turn positive.

Disclaimer

The content of this site is the author’s personal opinions and is for reference only. I am not responsible for the correctness, opinions, and immediacy of the content and information of the article. Readers must make their own judgments.
I shall not be liable for any damages or other legal liabilities for the direct or indirect losses caused by the readers’ direct or indirect reliance on and reference to the information on this site, or all the responsibilities arising therefrom, as a result of any investment behavior.