Key Takeaways
- Voters turned against new data centers in the Nov. 3 midterms, and Microsoft, Alphabet, Amazon and Meta now face rules that make them pay for their own power and grid.
- NextEra’s CEO, a Democratic congressman, OpenAI and Texas’s governor-elect all want the same thing: data centers cover the full cost of the power they use.
- Power is a small part of what a gigawatt of data center capacity costs, but this new bill comes as free cash flow has gone negative at Alphabet, Amazon and Meta.
- Microsoft was the only one of the four with positive free cash flow last quarter, so it’s best placed to pay the new bill from its own cash.
The bill for the data center backlash is coming due, and Microsoft (MSFT), Alphabet (GOOG), Amazon (AMZN) and Meta Platforms (META) are the ones who’ll pay it.
Voters in dozens of places chose to restrict or end new data center construction in the Nov. 3 midterms, and Democrats won the House and the Senate. On an episode of the In Good Company podcast released on election day, NextEra Energy CEO John Ketchum said “data centers have to pay their fair share. They have to pay their own costs for generation and transmission, full stop.”
He added that Florida just wrote its rules for big power users into law, and other states are doing the same.
Now the people writing the next laws agree with him. Democratic Rep. Sam Liccardo said on the MTS podcast that protecting local communities means “requiring the hyperscalers to bring their own power and invest in the grid.” On Nov. 5, OpenAI pledged to “pay our own way on energy and infrastructure.” And Atreides Management’s Gavin Baker wrote on X that Texas governor-elect Gina Hinojosa plans laws making newly permitted data centers “commit to no increase in power prices for consumers.”
So a new data center now comes with the bill for its own power plant and power lines.
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Microsoft already said yes
Microsoft saw this coming. In January, it pledged to pay the full cost of the power its US data centers use, including new generation and grid upgrades.
Now states are writing that promise into law for the whole industry, and it comes on top of a build-out that was already enormous. Microsoft’s capital spending has nearly quintupled in four fiscal years:
And the spending keeps climbing. Microsoft spent $39.4 billion in cash on capex in the September quarter alone, and it guided to more than $50 billion for the December quarter.
Alphabet’s capital spending has more than tripled since 2021:
And Alphabet is borrowing to pay for it. Its debt more than tripled in a year, to $150 billion.
The cash is already spoken for
Amazon’s free cash flow shows what that spending does to cash. After two years above $32 billion, it fell to $7.7 billion in 2025:
And it’s gotten worse since. In the September quarter, Microsoft was the only one of the four with positive free cash flow. Meta spent $33.9 billion on capex that quarter, more than the $32.8 billion its operations brought in.
Even Microsoft’s free cash flow fell to $18.6 billion, from $25.7 billion a year earlier. It also sold $25 billion of bonds, its first US investment-grade bond sale since 2017.
Small next to the chips
Power is a small part of what a gigawatt costs. Bernstein estimated last year that generators and turbines make up about 6% of an AI data center’s cost, and transformers about 5%. The servers are the big expense: about $3.4 million of the $5.9 million a rack of top-end AI systems costs.
Running a data center costs less again. Bernstein put a gigawatt’s electricity bill at about $1.3 billion a year, at 15 cents a kilowatt-hour.
So paying for its own generation and transmission won’t break the budget at Microsoft, which adds about a gigawatt of capacity a quarter.
Plus, the Texas plan asks for more than a power bill. Hinojosa also wants new data centers to pay taxes, protect people’s water and use union labor. Baker says she’ll let every data center already permitted in Texas finish, which covers 2027 and likely well into 2028. So the new terms apply to data centers due in 2028 and 2029.
Microsoft can pay its own way
Microsoft and Alphabet will pay for their own power and grid from here on, and that bill is modest next to the chips.
What separates them is whose cash pays it. Microsoft can still cover the bill from its operations. Alphabet, Amazon and Meta spent more than their operations brought in last quarter, so every extra dollar for a substation adds to what they borrow.
The way I see it, that makes Microsoft the best placed of the four under the new rules.
Of course, Texas hasn’t written its laws yet, and each state still has to set its rates for big power users. Watch the capex forecasts in the four companies’ next reports, due in late January and early February.
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