Apollo’s Sløk: The Market Faces Big Risks if Hyperscalers’ AI Profits Get Delayed
Wall Street is eagerly anticipating a surge in free cash flow from hyperscaler companies, particularly in 2028. However, if this boom doesn’t materialize, the consequences could be severe, warned Apollo Global Management’s chief economist, Torsten Sløk.
As hyperscalers have invested heavily in artificial intelligence, free cash flow at the traditionally cash-heavy Big Tech leaders has plummeted. This trend has pushed the ‘Magnificent Seven’ companies to pivot toward debt issuance to fund hundreds of billions of dollars in spending. In 2026, Amazon, Meta, Google, and Microsoft are expected to spend over $700 billion, marking a significant shift from being the ‘source of cash’ to the ‘user of cash.’
Three Potential Risks if AI Profits Get Delayed
Apollo’s Sløk identified three potential risks if hyperscalers’ AI profits get delayed. The first risk is that earnings results will disappoint, leading to squeezed margins. If the projected surge in free cash flow is delayed while committed capital expenditures and heavy depreciation continue, it could become increasingly difficult to fund massive capital expenditure commitments.
The second risk is that a lesser-than-expected earnings performance from Big Tech could trigger a Magnificent Seven sell-off, which could have a ripple effect on the entire market. The ‘S&P 493’ could be impacted, as the seven Big Tech stocks account for a significant portion of the indices. If internal cash is unable to keep pace with spending, pushing hyperscalers further into the debt market, their stocks could invite rating downgrades if profits fall behind schedule.
The third risk is that a slower payoff for hyperscalers’ AI investments could risk tipping the economy into recession and the S&P 500 into a correction. With so much riding on so few names, Sløk argued that a slower payoff wouldn’t just be a sector problem, but a broader economic issue.
Bank of America recently noted that today’s Big Tech leaders are now ‘at least as capital-intensive as oil companies,’ which traditionally rank among the most capital-intensive businesses in the market. Furthermore, the decoupling of hyperscalers’ earnings-per-share growth from free cash flow could mark a potential deterioration in earnings quality, per BofA.
Big Tech is about to spend trillions to dominate the AI era, and the industry is counting on the trend of declining free cash flows to turn around as the AI business case starts generating serious cash for companies that have thrown money at the burgeoning technology.
However, if this trend doesn’t materialize, the consequences could be severe. As Sløk warned, ‘With so much riding on so few names, a slower payoff wouldn’t just be a sector problem, it would risk tipping the economy into recession and the S&P 500 into a correction.’
While the hyperscalers are in healthier financial positions than the 1990s tech leaders that blew up in the market collapse through 2000 and 2001, the industry is still at a critical juncture. The decoupling of earnings-per-share growth from free cash flow could mark a potential deterioration in earnings quality, and a slower payoff for hyperscalers’ AI investments could risk tipping the economy into recession.
The Industry’s Big Bet on AI
The industry’s big bet on AI has led to a significant shift in spending patterns. In 2026, Amazon, Meta, Google, and Microsoft are expected to spend over $700 billion, marking a significant shift from being the ‘source of cash’ to the ‘user of cash.’
This trend has pushed the ‘Magnificent Seven’ companies to pivot toward debt issuance to fund hundreds of billions of dollars in spending. While the hyperscalers are in healthier financial positions than the 1990s tech leaders that blew up in the market collapse through 2000 and 2001, the industry is still at a critical juncture.
