AI Is Eating Big Tech’s Free Cash Flow: Why Microsoft and Oracle Face Different Risks

2 months ago 10

Habib Ur Rehman

Wed, July 22, 2026 astatine 8:49 AM CDT 3 min read

The AI roar is forcing immoderate of technology's biggest currency machines to behave much similar utilities. On July 22, Reuters reported that Microsoft Corporation (NASDAQ:MSFT), Oracle Corporation (NYSE:ORCL), and 3 different hyperscalers are expected to walk much connected superior expenditures than they make successful combined escaped currency travel by 2027. From 2025 done 2027, their yearly operating currency travel is projected to emergence by $340 billion, versus a $534 cardinal summation successful capex. Microsoft and Oracle, however, are not carrying the aforesaid risk.

Microsoft's Problem Is Returns, Not Funding

Microsoft showed the compression successful fiscal Q2. Operating currency travel was $35.8 billion, portion capex including concern leases reached $37.5 billion. That does not mean the institution burned cash: Microsoft reported $5.9 cardinal of accepted escaped currency travel due to the fact that that measurement deducts currency spot and instrumentality purchases, not recently originated concern leases.

Why Microsoft and Oracle Face Different Risks

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Fiscal Q3, however, was stronger. Operating currency travel roseate to $46.7 cardinal and escaped currency travel reached $15.8 billion, adjacent aft $30.9 cardinal of currency spot and instrumentality spending. Its AI concern besides passed a $37 cardinal yearly gross tally rate. Microsoft tin concern the buildout. The question is whether Azure and Copilot tin make bully returns earlier costly GPUs depreciate oregon go obsolete.

Oracle Is Financing Tomorrow's Revenue Today

Oracle has a much contiguous currency problem. In fiscal 2026, it spent $55.7 cardinal connected capex against $32 cardinal of operating currency flow, leaving escaped currency travel astatine antagonistic $23.7 billion. Demand is real: unreality gross grew 39% to $34 billion, and remaining show obligations reached $638 billion. But backlog is not cash. Oracle indispensable conception capableness earlier overmuch of that gross arrives, and plans to rise $45 cardinal to $50 cardinal done indebtedness and equity.

Insider Monkey's Q1 database counted 282 hedge funds holding Microsoft and 115 holding Oracle, which shows AI spending has not driven distant organization longs. More caller abbreviated information are much discriminating, though. By June 30, Microsoft abbreviated involvement had fallen 6.4% to 1.20% of float, portion Oracle's had risen 11.4% to 2.47%. Neither banal is heavy shorted, but bears person go much consenting to situation Oracle.

Microsoft indispensable beryllium it tin sphere software-like returns portion gathering carnal infrastructure. Oracle indispensable besides beryllium it tin concern that infrastructure without allowing involvement costs and dilution to devour the economics. Microsoft faces a return-on-capital test. Oracle faces that trial positive a balance-sheet test.

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