Unlimited AI Spending Is Pal's View. Should Tech Stocks Worry?

Raoul Pal thinks the largest technology companies on the planet can sustain artificial-intelligence spending almost without limit. Their latest earnings, however, show just how costly that ambition is becoming.

Alphabet's shares fell sharply after Wednesday's report, as AI-related spending dragged quarterly free cash flow to negative $9.07 billion. Microsoft's stock advanced after it posted positive free cash flow of $18.6 billion.

That contrast puts a crucial question in front of AI-stock investors: how long can Big Tech keep committing hundreds of billions before returns become evident?

The matter is even more pressing now that China's AI bubble has burst and taken the country's equity market down with it.

The hyperscalers are the biggest cash-generating businesses the world has ever seen. And they're recycling all of that cash flow into the biggest capex build in history.

It's a self-reinforcing loop. They use the technology they're building themselves, productivity rises, cash…

— Raoul Pal (@RaoulGMI), October 27, 2026

Why Pal Sees No Ceiling on AI Spending

The Real Vision chief executive argued that the largest technology firms have enough financial firepower to carry the biggest infrastructure expansion in decades.

“It’s a self-reinforcing loop,” Pal explained.

His thinking: companies adopt the AI technology they build, become more efficient and produce stronger cash flow, then recycle that cash into still more AI infrastructure.

Pal puts the group's debt at roughly 3.5% of its stock-market value.

“They’re barely in debt at all,” he said.

He likens the buildout to the railroad boom, which ran for 30 years, and says the demand for computing power may have more room to run.

The Implications for AI Stocks

For shareholders, the immediate issue is whether such large budgets will eventually deliver enough profit.

Amazon is expected to spend about $220 billion in 2026, while Alphabet has budgeted as much as $205 billion. The numbers include infrastructure investment that goes beyond AI.

The latest earnings illustrate the split.

Microsoft's Azure cloud revenue grew 48%, which underpinned investor confidence. Alphabet's cloud revenue more than doubled, but its spending outpaced cash generation.

Both companies are expanding their AI efforts. Their shares, though, drew very different responses.

Is Rising Debt a Threat to the AI Boom?

Credit markets are presenting a growing challenge to Pal's optimism.

Union Bancaire Privée's estimate puts five major hyperscalers' 2026 spending at $820 billion, above the $750 billion operating cash flow they are projected to generate.

The Bank of England has also cautioned that AI infrastructure is relying more heavily on borrowing and complex financing structures.

This is why ongoing revenue growth is essential. If borrowing costs climb, AI investment could eventually feel the pressure.

What Lies Ahead for AI Stocks?

Amazon's October 29 earnings are the next test.

Robust cloud demand and better cash flow would bolster Pal's case. More cash burn could heighten concerns about valuations and future spending.

The effects could reach Bitcoin miners such as MARA and CleanSpark, which are moving into AI infrastructure.

Arthur Hayes, who previously ran BitMEX, has cautioned that the AI buildout could be overdone, leading to a crash and possibly a bailout.

Over the coming quarters, investors will see whether AI's rising revenue can support its extraordinary costs.