Google’s AI Spending Pushes Quarterly Free Cash Flow Into the Red

Summary

Alphabet reported $5.9 billion in negative free cash flow for the second quarter of 2026, the first time the figure has fallen below zero since Google went public. The company generated $39.1 billion in operating cash flow but spent $44.9 billion on capital projects, most of it on servers, data centers, and networking equipment supporting AI products. Alphabet still reported $119.8 billion in quarterly revenue, up 24 percent year over year, $40.8 billion in operating income, and record net income of $112.1 billion. However, about $98 billion of the net income came from primarily unrealized gains on equity investments, which do not necessarily represent cash received from selling assets. Alphabet raised its 2026 capital-spending forecast from $180 billion-$190 billion to $195 billion-$205 billion, more than double its approximately $91 billion spend in 2025, and its CFO said spending would increase significantly again in 2027. About 60 percent of quarterly technical-infrastructure spending went to servers and 40 percent to data centers and networking. Alphabet said the capacity supports external cloud customers and products including Search, Gemini, and Google Workspace. Cloud revenue rose 82 percent to $24.8 billion, while Cloud operating income more than tripled to $8.8 billion. Alphabet shares fell nearly 7 percent the next day as investors reacted to the spending outlook and continued pressure on free cash flow.