Google AI spending sends Alphabet free cash flow below zero
Alphabet posted $119.8 billion in revenue but negative free cash flow as it lifted 2026 capital spending to as much as $205 billion.
By Georgia Hale · Staff Writer
3 min read
Google AI spending has pushed Alphabet into an unusual cash squeeze: the company reported $119.8 billion in quarterly revenue, yet its free cash flow fell below zero for the first time since it became a public company.
Alphabet, Google’s parent company, said in its second-quarter 2026 results that it generated $39.1 billion in operating cash flow but spent $44.9 billion on capital projects. The result was negative free cash flow of $5.9 billion.
The cash drain came from the hardware-heavy side of the AI boom. Alphabet said the money is going into technical infrastructure, including servers, data centers and networking equipment needed for its AI products and cloud business.
Why is Google spending so much on AI?
Alphabet says it needs more computing capacity to serve outside Google Cloud customers and to run its own products, including Search, Gemini and Google Workspace. AI systems require costly infrastructure because they rely on large numbers of specialized servers, data centers, networking gear and power to train and run models at scale.
The company is not tapping the brakes. On July 22, Alphabet raised its expected 2026 capital spending to between $195 billion and $205 billion, up from the $180 billion to $190 billion range it gave investors after the first quarter.
That new forecast would be more than double Alphabet’s roughly $91 billion in capital spending in 2025. On the earnings call, Chief Financial Officer Anat Ashkenazi told investors that capital expenditures would rise “significantly” again in 2027.
“We expect that free cash flow will remain under pressure driven by our investments in technical infrastructure, which enable us to capitalize on the AI opportunity and continue to drive attractive returns,” Ashkenazi said.
Ashkenazi said about 60 percent of Google’s technical infrastructure spending in the quarter went to servers. The remaining 40 percent went to data centers and networking equipment.
Alphabet’s core money machine is still roaring. In its Q2 earnings report, the company said revenue rose 24 percent from a year earlier. Operating income reached $40.8 billion.
Net income climbed to a record $112.1 billion, though Alphabet’s filing shows a major boost came from investments rather than day-to-day operations. The company reported about $98 billion in other income, primarily from unrealized gains in its equity investment portfolio. Those paper gains reflect assets that rose in value but were not necessarily sold for cash.
Some of the AI buildout is already tied to sharp growth in Cloud. Alphabet said Google Cloud revenue hit $24.8 billion in the quarter, up 82 percent from a year earlier, while Cloud operating income more than tripled to $8.8 billion.
Other Google businesses also kept growing. Alphabet reported $63.3 billion from Search advertising, $11.1 billion from YouTube advertising and $12.9 billion from subscriptions, platforms and devices. The company said AI subscription demand helped lift its Google One business.
Google is part of a wider Big Tech spending race. Reuters reported that Google, Amazon, Microsoft and Meta are expected to invest more than $700 billion this year, largely on data centers, chips and electricity for AI systems.
Investors still had a sharp reaction to the bigger bill. The Financial Times reported that Alphabet shares fell nearly 7 percent on Thursday, July 23, after the company raised its spending forecast and said free cash flow would stay under pressure.
This story draws on original reporting from Mashable.