Heavy investment in artificial intelligence infrastructure pushed Alphabet, Google’s parent company, into negative free cash flow for the first time in at least a decade, even as the company continued to post strong business growth.
Alphabet reported combined quarterly revenue of $119.8 billion, marking a 23% increase compared to the same period last year. However, its free cash flow fell to negative $5.9 billion after accounting for operating expenses and investments. Following the earnings announcement, the company’s shares declined by 4% in after-hours trading.
The company has increased its projected AI-related capital expenditure for the year to between $195 billion and $205 billion, up from the earlier estimate of $190 billion. Chief Financial Officer Anat Ashkanazi said the negative free cash flow was mainly driven by rising capital expenditure linked to AI infrastructure.
According to Ashkanazi, Alphabet spent $45 billion during the 2nd quarter, with 60% allocated to servers and the remaining 40% invested in data centres. In comparison, capital expenditure stood at $36 billion in the 1st quarter. She added, “the demand still outpaces that investment” and said the company will continue investing as long as attractive opportunities remain.
Chief Executive Officer Sundar Pichai said AI is still in its early stages and described the shift as “feels like early innings in a shift across multiple areas.” He also stated, “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.”
Market analysts noted that the scale of Alphabet’s AI spending has raised investor concerns despite strong revenue growth.
Tesla also reported negative free cash flow of $1.1 billion during the 2nd quarter due to increasing investment costs. The company’s Chief Financial Officer Vaibhav Taneja said Tesla plans to spend up to $25 billion this year, more than double its capital expenditure in 2025. He described the company as being in “a big investment cycle” and said spending is likely to increase further over the next 3 years. Tesla shares also fell 4% in after-hours trading.
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