Bank of America: Combined free cash flow of hyperscalers over the next 12 months has plunged to below negative $100 billion, with capital flowing to semiconductor suppliers on a historic scale

According to a BofA Global Research report, the combined free cash flow of hyperscale cloud service providers over the next 12 months has plunged to below negative $100 billion, with capital expenditures consuming 95% of operating cash flow, marking a historic flow of funds to semiconductor suppliers. In stark contrast, as of September 2026, the combined free cash flow of the three leading semiconductor manufacturersNvidia, Micron, and Broadcomover the next 12 months has soared to nearly $500 billion. This massive divergence stems from an aggressive infrastructure buildout wave: cloud giants such as Microsoft, Amazon, Alphabet, Meta, and Oracle have sharply ramped up spending before the related revenue materializes. BofA Securities said that rising risk-free yields, widening bond spreads, and elevated equity beta have pushed up the weighted average cost of capital for cloud providers, jumping from 4% in 2023 to 10%, with financing pressure continuing to intensify. The market consensus is that cloud providers' free cash flow will turn positive in the second half of 2027 as revenue growth outpaces spending growth. However, historical estimate revisions show that this path carries significant risk. Since December 2024, market estimates for cloud providers' 2027 capital expenditures have been raised by 81%, while consensus AI-related revenue estimates have been raised by only 24% over the same period. If the return on new investment fails to clear the 10% cost of capital threshold, or if cloud business monetization progress cannot keep pace with computing capacity delivery, cloud providers will face prolonged cash burn while stock valuations come under further pressure.