Alphabet's AI Push Delivers Growth, but Spending Weighs on Cash Flow
The Google parent reported its first negative free cash flow in at least a decade as AI infrastructure investments continued to accelerate.
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[Image: Nomita Samaiyar/MITSMR Middle East]
Google parent Alphabet on Wednesday reported its second-quarter earnings, announcing that revenue grew by 24% year over year, largely on the back of its artificial intelligence bets. “Our AI investments are redefining what’s possible across every part of our business,” read the official statement.
While business grew in recent months, spending on AI infrastructure has pushed the tech giant’s cash into negative territory. Its free cash flow, the figure maintained after operations and investments, fell to negative $5.9 billion (£4.3bn) for the first time in at least a decade.
Alphabet’s AI spending is expected to touch $205 billion in 2026— an increase from $190 billion in the last quarter. Meanwhile, its combined quarterly revenue hit $119.8bn— up 24% year-on-year.
“As long as we see these attractive opportunities to invest, we will continue to invest,” said Anat Ashkanazi, chief financial officer, Google, on a call with financial analysts.
Its Search and Other business saw a 17% revenue increase, while YouTube ads grew by 13%. Meanwhile, its cloud vertical delivered an impressive 82% growth driven by rising demand for AI infrastructure and solutions.
Despite the best-ever quarter of growth for the cloud computing division, Alphabet faced investor scrutiny, partly because its main AI model keeps getting delayed and partly because it announced it would spend $15 billion more than expected on AI infrastructure in 2026.
“We have increased our capacity quite significantly over the past three years. The demand still outpaces that investment,” Ashkenazi added.
According to Google’s chief executive, Sundar Pichai, the company’s plans around generating financial returns on its AI spending were “disciplined”.
“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.”
In June, Apple announced partnering with Google and Nvidia to develop its most advanced model yet, the Apple Foundation Model Cloud Pro.
Google’s news comes shortly after Tesla reported negative free cash flow of $1.1 billion for the second quarter due to rising investment costs.
