Alphabet posts negative free cash flow as AI capex heads to $205bn

Stock falls 4% in after-hours trading after quarterly results

Alphabet’s free cash flow — the cash remaining after paying for operations and investments — came in at negative $5.9 billion for the quarter. It was the first time the figure had been negative since at least the company’s initial public offering, according to its financial records.

Capital expenditures totaled $45 billion in the second quarter, up from $36 billion in the first quarter, Anat Ashkanazi, Google’s chief financial officer, told financial analysts on a call. She said 60% of the spending went toward servers and 40% toward data centers, and that the expenditures were essentially all related to AI.

“As long as we see these attractive opportunities to invest, we will continue to invest,” Ashkanazi said, adding that “the demand still outpaces that investment.”

Sundar Pichai, Google’s chief executive, described the AI shift as still in “early innings,” telling analysts the company’s plans for financial returns were “disciplined.” He added: “What I see with what you can do with frontier capabilities, there is still a lot of work left to do to translate that into experiences for our users. So that looks like extraordinary opportunities with extraordinary returns.”

Despite the spending, Alphabet’s revenue continued to grow. The company reported combined quarterly revenue of $119.8 billion, up 23% from the same period a year earlier.

The company’s stock fell about 4% in after-hours trading after the results were released.

Rachel Winter, a partner at the wealth management firm Killik & Co, said there was “a bit of surprise among investors about how much Google was spending.” The company’s projection of $195 billion to $205 billion in total annual capital spending represented “huge numbers,” she said, adding that the after-hours stock decline suggested “there is a little bit of concern about those levels.”

Tesla also reported negative free cash flow on Wednesday, posting a $1.1 billion shortfall for the second quarter due to increasing investment costs. It was the electric vehicle maker’s first negative showing in two years, according to its financial records.

Vaibhav Taneja, Tesla’s chief financial officer, told analysts the company would spend as much as $25 billion this year, more than double its capital spending in 2025. He added that Tesla was in “a big investment cycle” and that spending would likely increase further over the next three years. Tesla’s stock also fell 4% in after-hours trading.