AI giants burn cash, energy giants print money: Super earnings report week, shredder versus money printer

Introduction: Microsoft and Alphabet will announce their earnings after the market closes on October 28, followed closely by Amazon, with ExxonMobil and Chevron wrapping up this week. The highlights of this earnings season are not just how fast AI demand can grow, but also the cash cost required for that growth.

Over the past two years, the market has been willing to pay a premium for the long-term returns of cloud computing and AI infrastructure. As capital expenditures continue to rise and free cash flow begins to come under pressure, investors need to recalculate whether orders can be timely converted into revenue, whether revenue can cover depreciation, and ultimately how much cash is truly left for shareholders.

This week, Microsoft, Alphabet, and Amazon need to answer questions about the returns on AI investments. ExxonMobil and Chevron provide another reference point: when profits are converted into cash, and that cash can be turned into dividends, buybacks, and debt reduction, what price is the market willing to assign to such assets?

1. 160 Companies Reporting This Week, Market Focus on Cash Flow Statements

About 160 S&P 500 companies will report their earnings this week, with Microsoft, Alphabet, Amazon, ExxonMobil, and Chevron being the most closely watched group (TradingKey and company announcements summary). The schedule is Microsoft and Alphabet on October 28 after the market closes, Amazon and Intel on October 29 after the market closes, Eli Lilly and Caterpillar on October 29 before the market opens, and ExxonMobil and Chevron wrapping up on October 30. During the same period, Samsung Electronics, SK Hynix, and Kioxia will also release their results, with the demand and costs of AI infrastructure becoming a common topic across U.S. stocks and Asian tech stocks.

The market has already given a signal. Last week, the MAGS Seven Giants ETF fell nearly 7% from its year-to-date high, and Meta's free cash flow turned negative, dropping about 18% from its peak (reported on October 26).

This does not mean the market no longer believes in AI. More accurately, investors are starting to question how much capital expenditures, depreciation, and financing costs will increase alongside AI demand growth. When revenue growth is no longer sufficient to explain valuations, the cash flow statement becomes the next checkpoint for assessing investment returns.

2. AI Giants Burn Billions Annually, Can Cash Flow Keep Up?

The three giants spent a total of about $134.9 billion on property and equipment last quarter, roughly double that of a year ago (company announcements summary). The construction of AI infrastructure is still accelerating, but it is becoming clearer that the gap between the growth rate of investments and cash returns is widening.

Alphabet's capital expenditures are projected to rise from $32.2 billion in 2023 to $91.4 billion in 2025, with a midpoint guidance of about $200 billion for 2026 (interface and company guidance). Based on this guidance, an average quarterly investment of about $57.2 billion to $62.2 billion is needed in the second half of the year, significantly higher than the $44.9 billion in the second quarter (this article's estimate). In other words, what the market is looking at is not just how much was spent this quarter, but whether this round of investment is still accelerating.

Amazon faces similar cash pressures. Second-quarter capital expenditures were $54.2 billion, a year-on-year increase of 68%, with free cash flow approximately negative $18.2 billion in the first quarter and negative $8.8 billion in the second quarter, resulting in two consecutive quarters of net outflow.

Microsoft's disparity illustrates the issue more clearly. Capital expenditures for fiscal year 2026 (July 2025 to June 2026) are about $115.9 billion, 4.1 times that of fiscal year 2023's $28.1 billion, while free cash flow only increased from $59.5 billion to about $67 billion during the same period (interface, fiscal year data). The scale of investment has quadrupled, but cash returns have not increased proportionally.

Demand is not without support. Alphabet disclosed a backlog of cloud business orders of about $514 billion (reported data), and Amazon's computing orders extend to 2028. The real question is how quickly these orders can be converted into revenue and profit, and how much additional capital expenditure is needed to complete the delivery.

3. Cash Flow Yield Underperforms U.S. Treasuries, Tech Giants' Valuations Under Pressure Again

A single quarter turning negative may be influenced by payment timing and expenditure timing, while the rolling four-quarter total is more suitable for observing cash generation capability. According to interface data, Alphabet's rolling four-quarter free cash flow is still about $53.3 billion; a single quarter turning negative does not mean that the cash generation capability over the past year has collapsed. Amazon's rolling four-quarter free cash flow is about negative $11.6 billion (reported data is negative $7.6 billion, the difference may come from the calculation method of finance leases, noted in the text). Microsoft's free cash flow for the last fiscal year was $66.987 billion.

Comparing free cash flow to market capitalization provides a more intuitive view of valuation pressure. Based on rolling four-quarter data and the market capitalization as of October 23, Alphabet's free cash flow yield is about 1.4%, Microsoft's for the last fiscal year is about 1.7%, and if Goldman Sachs' forecast is realized (from $67 billion to $40.1 billion), it could drop to about 1.0% next year. Meanwhile, the yield on 10-year U.S. Treasuries is around 5%.

This comparison does not directly conclude that U.S. Treasuries are superior to tech stocks. The cash flow of stocks can grow with business expansion, and bond yields do not equate to the long-term total returns of stocks. It indicates another reality: current valuations may require stronger future cash flow growth to support them.

Energy giants provide a different reference. According to the same set of calculations, ExxonMobil and Chevron's free cash flow yields are approximately 4.1% and 5.5%, respectively, higher than or close to Treasury levels. What the market is truly comparing is how much cash can be obtained for the price paid today and how much risk needs to be taken on for future growth.

4. Orders Do Not Equal Payments: When Will AI Investments Recoup Costs?

The return on investment in AI infrastructure depends on the speed of order fulfillment, the intensity of capital expenditures, and the depreciation pressure after new assets are put into use.

In terms of order conversion, Alphabet's cloud backlog is about $514 billion, and based on the second quarter's cloud revenue of $24.8 billion annualized, it corresponds to an annual revenue of about $99.2 billion (this article's estimate), with a static ratio of about 5.2 times. This figure does not represent the actual payback period, nor does it mean that backlog orders will be evenly recognized as revenue over five years; it is more suitable for illustrating the gap between order scale and current revenue. The earnings call will need to clarify delivery timelines, revenue recognition pace, and whether customer demand will change.

In terms of investment scale, Amazon's capital expenditure plan for 2026 is about $220 billion (reported data), already exceeding the total revenue of AWS over the past four quarters of about $168.8 billion (about $42.2 billion multiplied by four, this article's estimate). The two are not entirely comparable, as capital expenditures serve multiple years and various businesses, while AWS revenue is the current revenue of a single business. This ratio still indicates that building AI infrastructure requires massive upfront investments, and short-term cash flow may face considerable pressure.

Regarding depreciation, the three giants' capital expenditures for 2026 total about $670 billion (media summary), and based on straight-line depreciation over 5 to 6 years, the annual new depreciation after full operation will be about $110 billion to $130 billion. This is just a static scenario and does not mean that all expenditures will be operational in the same year or use the same depreciation period. The key is whether the gross profit from new cloud revenue can cover the new depreciation and when profit margins will be affected.

Counter-evidence must also be placed in context. Cloud revenue has dual options for price increases and demand expansion; Microsoft has already warned investors that free cash flow will return to growth (reported). The key variable folded into the valuation is the gross profit structure of incremental revenue; the absolute value of expenditures is secondary, which is precisely the part worth listening to closely during the earnings call.

5. Energy Giants Expected to See Significant Profit Growth

Unlike AI giants that are heavily investing in future capacity, the focus for energy giants is whether profits can be converted into cash and where that cash will ultimately flow.

According to LSEG summary data, ExxonMobil's third-quarter profit expectation is about $16.2 billion, a year-on-year increase of about 101%, while Chevron's expectation is about $9.3 billion, a year-on-year increase of about 158% (reported by Reuters). Based on the previous year's baseline from the interface, the two are approximately 115% and 163%, respectively, with differences from LSEG data possibly due to adjustments; the text is based on LSEG summary. These forecasts await confirmation from formal earnings reports but already reflect market expectations for profit growth from the two companies.

Cash flow data provides another layer of support. ExxonMobil's operating cash flow in the second quarter was about $23.555 billion, with free cash flow of about $17.028 billion, achieving 72% of the full year's target for 2025 in just one quarter, with quarterly capital expenditures stable at around $6.5 billion, not expanding with oil prices. Chevron's second-quarter free cash flow was about $16.807 billion, equivalent to about 101% of its full-year target for 2025, with full-year capital expenditures trending toward the lower limit of the $18 billion to $19 billion range (reported by Goldman Sachs). Chevron's first-quarter free cash flow was negative $1.5 billion, and a single quarter's peak cannot be directly extrapolated for the entire year.

For the energy sector, the key is not just how much can be earned when oil prices rise, but whether the company can control capital expenditures and continuously use cash for dividends, buybacks, and debt reduction. If third-quarter profits meet expectations, ExxonMobil's rolling price-to-earnings ratio will drop from the current approximately 23 times to about 18 times (calculated from net profit totals and market capitalization), combined with a rolling free cash flow yield of about 4%, its attractiveness does not entirely rely on further increases in oil prices. This judgment still depends on oil prices, refining profits, and cash return policies, and cannot be concluded solely based on one quarter's profit growth.

6. Caterpillar's Orders Cover Second Half Revenue, Yet Stock Price Falls 34% from June Peak

Caterpillar's earnings report will test whether AI investments can continue to transmit to the real economy. The company will report before the market opens on October 29, with market expectations for revenue of about $20.7 billion, a year-on-year increase of about 17%, and adjusted EPS of about $7 (analyst summary). Bernstein estimates its backlog of orders at about $77 billion, approximately equal to 0.93 times annualized revenue (based on third-quarter expected annualized revenue of about $82.8 billion), covering 100% of expected revenue for the second half of 2026, with a historical average level of about 60% (research report reference). The demand for power generation equipment, cooling systems, and heavy machinery driven by data center expansion provides direct support for orders.

Having sufficient orders does not necessarily mean profits will grow in sync. In the week before the earnings report, Caterpillar's stock price fell about 33.89% from its closing peak on June 30 (TIKR statistics), as the market seeks to confirm whether backlog orders can be converted into shipments and revenue as planned, and whether the sales growth rate of power generation equipment can maintain the second quarter's 29% level. Orders reflect demand, but shipments, gross margins, and cash recovery ultimately determine how much that demand is worth.

7. Eli Lilly Is Not Cheap, but Cash Flow Is Visible

Eli Lilly will report before the market opens on October 29, with market expectations for third-quarter EPS of about $8.38 and revenue of about $22.97 billion (RBC and public reports). Based on interface baseline calculations, revenue is expected to increase by about 31% year-on-year, and EPS is expected to increase by about 35%, remaining basically flat quarter-on-quarter, with the growth momentum's slope needing confirmation during the earnings call.

Eli Lilly currently has a price-to-earnings ratio of about 45 times (based on rolling four-quarter net profit of about $26.7 billion and market capitalization as of October 23), which is not low. Its highlights lie in the growth logic, with prescription-driven drug revenue and AI infrastructure investment being two paths. The company's free cash flow for the first and second quarters was $3 billion and $7.8 billion, respectively, totaling about $10.8 billion for the first half of the year, which has already exceeded the full-year target of $9 billion for 2025. This type of cash flow also faces risks from R&D, competition, and drug pricing, but does not need to rely on tech giants to continuously expand capital expenditures to realize it.

In the week when AI assets were repriced, Eli Lilly provided another type of risk exposure. The real question is how much investors are willing to pay for visible revenue growth and cash generation capability.

Eight, Three Key Sentences to Watch in the Conference Call: Capital Expenditure, Depreciation, and Order Fulfillment

Over the past two years, capital has paid a high premium for computing power positions ten years out, tolerating giants borrowing money to expand production. With the 10-year U.S. Treasury yield hovering around 5% and financing costs remaining high, patience is wearing thin, and capital is beginning to scrutinize the balance sheets of tech giants using the standards applied to cyclical stocks. Meta demonstrated pricing last week, with capital expenditures exceeding expectations, negative free cash flow, and the stock price taking a heavy hit.

In the conference call, first listen for the 2027 capital expenditure guidance, whether it will slow down or ramp up, which will determine how long the cash flow alarm rings. Next, listen for the matching of depreciation and profit margins, whether Microsoft's Azure can withstand the depreciation ramp-up at a fixed exchange rate, and when the new depreciation will be covered by incremental gross profit, which outlines the timeline for cash flow returning to positive. Finally, listen for orders and collections, the revenue recognition rhythm of cloud backlog orders, and the fulfillment progress of Amazon's computing power orders scheduled for 2028.

During this earnings report week, the market is comparing the cash flow quality, fulfillment timing, and valuation costs of different assets at the same table. AI giants may still realize high returns on investment through cloud business growth and computing power demand, provided that investors see a clearer return path. Energy giants need to prove that current cash flow can continuously translate into dividends, buybacks, and balance sheet improvements, and is not solely reliant on the short-term price environment.

Cross-market transmission is also occurring. The capital switch between U.S. stocks with certainty and AI high-elasticity assets may be affecting technology stocks and dividend assets in the Hong Kong stock market, as evidenced by the continuous net selling of southbound funds over the past two weeks, which reflects the same logic.

Data Explanation

• Earnings report calendar and companies: TradingKey's one-week outlook, MarketBeat, CNBC, and Eastmoney summary, from October 25 to 26, 2026.

• Four financial data tables (revenue, net profit, operating cash flow, capital expenditure, free cash flow): Market financial interface, latest period ending June 30, 2026, historical periods aligned with the end of the reporting period. Microsoft data is for the fiscal year (July 2025 to June 2026), rolling four quarters are the sum of interface quarters.

• Indicator definitions and comparison limitations: Capital expenditures in the text and charts are based on the property and equipment expenditures disclosed by each company, excluding principal of finance leases, as accounting treatment for finance leases varies among companies, with involved figures separately noted. In the free cash flow yield comparison, market capitalization is taken as of the close on October 23, 2026, and the 10-year U.S. Treasury yield of about 5% is a reading from around October 20, with different time points, and the results are for directional reference.

• Calculation notes: Free cash flow yield (free cash flow divided by interface market capitalization), Google order conversion is about 5.2 years, Amazon's expenditures compared to AWS revenue, depreciation scale, Eli Lilly and ExxonMobil's price-to-earnings ratios are all calculated in this article, not disclosed by the companies or institutions.

• Alphabet's cloud backlog orders are $514 billion, Amazon's capital expenditure for 2026 is about $220 billion, and TTM free cash flow reported data: OANDA, Benzinga, Wall Street Insights, etc., cited without individually verifying original documents.

• Microsoft's free cash flow forecast (from $67 billion to $40.1 billion): Goldman Sachs research report cited by the media, from October 15 to 16, 2026.

• Energy profit expectations: LSEG and Reuters (cited by OilPrice.com, Yahoo Finance), October 21, 2026. Details on ExxonMobil's refining profits come from the company's 8-K preview and BMO estimates.

• Caterpillar's backlog orders and coverage: Bernstein and Citigroup research reports cited by Investing.com, from October 12 to 14, 2026. Stock price and expected revenue data come from TIKR, October 23, 2026.

• Eli Lilly expectations: RBC Capital and public reports, October 2026.

• Individual stock closing prices and market capitalization: Market interface, closing on October 23, 2026.

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