The Same Hand · SAB · M Nadal & Co Strategic Advisory

AI Capex vs Free Cash Flow — The Compression

Why the capex cycle has no exit

Q1 2026 · Four hyperscalers

The thesis: AI revenue is arriving. FCF is collapsing anyway. The input cost — electricity above all — is growing faster than the output revenue it is supposed to justify. Capex-to-revenue ratios above 45% across all four major hyperscalers simultaneously is not a cycle. It is a structural compression.

+17%

Data centre electricity consumption growth · 2025 · IEA

$1.4tn

US grid investment planned through 2030 · utilities

+75%

Planned capex increase 2026 vs 2025 · five largest tech cos

15–25%

Projected cumulative residential electricity price rise through 2030

Capex committed vs free cash flow generated · Q1 2026 · $bn annualised

Amazon

AMZN · AWS

Capex committed

$200bn

Free cash flow

$1.2bn

FCF / Capex: 0.6%

Alphabet

GOOGL · Google Cloud

Capex / Revenue

46%

Cloud revenue YoY

+63%

Depreciation extended 4→6yr · $3.4bn saved

Microsoft

MSFT · Azure + Copilot

Capex / Revenue

47%

AI revenue annualised

$37bn

+123% YoY · Most FCF-stable

Meta

META · No cloud revenue

Capex / Revenue

54%

AI revenue offset

None direct

$2.8bn metaverse write-down 2023

The compression — what the ratios say

0.6%

Amazon FCF as share of committed capex · Q1 2026

54%

Meta capex as share of revenue · highest of four

+17%

Data centre electricity consumption growth · 2025 · IEA

+75%

Planned capex increase 2026 vs 2025 · five largest tech cos

The depreciation trap

Nvidia GPU cycles: 18–24 months · Hyperscaler depreciation schedules: 4–6 years
Alphabet extended server life 4→6yr in 2023 — $3.4bn depreciation reduction, zero change to hardware obsolescence
Meta wrote down $2.8bn in server assets 2023 — same mismatch, different trigger
The gap is a hidden liability. It appears in earnings as an impairment charge — suddenly.

Sources: Amazon Q1 2026 earnings · Alphabet Q1 2026 earnings · Microsoft Q1 2026 earnings · Meta Q1 2026 earnings · IEA data centre electricity report April 2026 · Alphabet 2023 10-K · Meta 2023 10-K

Capex/revenue ratios annualised from Q1 2026 guidance. FCF = free cash flow as reported.

AI capex · FCF compression · input cost problem