Alphabet’s AI Spending Pushes Free Cash Flow Into Negative Territory
Alphabet, the parent company of Google, reported strong revenue growth in its latest quarter, but rising investment in artificial intelligence (AI) infrastructure pushed its free cash flow into negative territory for the first time in at least a decade.
The technology giant recorded negative free cash flow of $5.9 billion (£4.3 billion), reflecting the cash remaining after covering operating expenses and capital investments.
Alphabet’s total revenue for the quarter rose 23 per cent year-on-year to $119.8 billion, highlighting continued growth across its business despite mounting AI-related costs.
However, investors reacted cautiously, with Alphabet shares falling about four per cent in after-hours trading following the earnings announcement.
Chief Financial Officer Anat Ashkenazi said the decline in free cash flow was driven almost entirely by increased capital expenditure tied to the company’s AI expansion.
She revealed that Alphabet spent $45 billion during the second quarter, with around 60 per cent allocated to servers and the remaining 40 per cent invested in data centre infrastructure. The figure represents a significant increase from the $36 billion spent in the first quarter.
The company also raised its projected AI-related capital expenditure for the year to between $195 billion and $205 billion, up from an earlier estimate of $190 billion.
Ashkenazi said demand for AI services continues to outpace the company’s investments and stressed that Alphabet intends to keep spending as long as attractive opportunities remain.
Google Chief Executive Officer Sundar Pichai described the AI transformation as being in its early stages, saying significant opportunities still exist to convert advances in AI into products and services for users.
He added that the company remains disciplined in its approach to generating long-term returns from its investments.
Rachel Winter, a partner at wealth management firm Killik & Co, said investors appeared surprised by the scale of Alphabet’s planned spending, noting that the decline in the company’s share price reflected concerns about the pace of investment.
Alphabet was not the only technology company to report pressure on its cash position.
Electric vehicle manufacturer Tesla also announced negative free cash flow of $1.1 billion during the second quarter, marking its first such result in two years as it ramps up spending on expansion.
Tesla Chief Financial Officer Vaibhav Taneja said the company expects to invest up to $25 billion this year, more than double its capital expenditure in 2025, describing the current period as a major investment cycle likely to continue over the next three years.
Tesla shares also fell around four per cent in after-hours trading following the earnings release.
