Google burned through cash in the second quarter for the first time since going public more than two decades ago as gargantuan artificial intelligence (AI) infrastructure spending has transformed it from an asset-light business into a capital-intensive one.
The company said free cash flow for the three months to the end of June turned to minus $5.9 billion (€5.2 billion), much lower than analysts had expected, as it again upped its spending forecast for data centres and other AI hardware.
Chief financial officer Anat Ashkenazi said capital expenditures in 2026 would be $195 billion-$205 billion, up from previous guidance of $180 billion-$190 billion. The stock dipped about 3.5 per cent in after-hours trading.
“We expect that free cash flow will remain under pressure driven by our investments in technical infrastructure, which enable us to capitalise on the AI opportunity and continue to drive attractive returns,” Ashkenazi said.
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Google’s second increase to its capex budget this year comes as it races rivals Meta, Microsoft and Amazon to build AI infrastructure, with the four hyperscalers combined on track to spend more than $725 billion in 2026.
Before Wednesday’s results, Google had been seen as the hyperscaler best placed to withstand the AI arms race, with cash flows from its vast search business expected to cushion the financial pressure.
Its cash burn and $15 billion boost to capex will add to investors’ anxiety about the scale of its bet on AI.
“Markets want to see hyperscalers pushing hard to secure AI leadership but not at a pace that eviscerates earnings,” said Dec Mullarkey, managing director at asset management firm SLC Management, noting that Alphabet was getting the balance right.
Google has held investors’ confidence partly because its AI spending has translated into stronger sales. Its cloud unit on Wednesday reported 82 per cent growth from a year earlier to $24.8 billion in the period. The core search advertising business grew 17 per cent on year to $63.3 billion, slightly below expectations.
The two business lines helped power total revenue to $120 billion, up from $96.4 billion a year ago, beating the analysts’ average estimates of $117 billion.
Sundar Pichai, Google’s chief executive, told investors: “It feels like we are in very early innings of what feels like [a] secular shift across multiple areas ... Over the past year, we’ve gotten more bullish on the opportunities ahead.”
Google in April lifted its expected capital expenditure spending for the year to as much as $190 billion and said it would rise further in 2027. The group reported second-quarter capex increased to $44.9 billion, which turned its free cash flow negative.
The free cash flow metric is closely watched as a measure of the cash companies have left to service debt or return to shareholders after covering their operating costs and capital spending.
Net income quadrupled to $112 billion, benefiting from gains on Google’s investments, which include a stake in SpaceX. Operating income, which does not include investment gains, rose 30 per cent to $40.8 billion, with operating margin expanding to 34 per cent.
Google has gained ground in the AI race thanks to a “full-stack” strategy that combines its own chips, data centres, frontier models and consumer products. It is under pressure to release its latest flagship model, as OpenAI, Anthropic and competitors in China announce technical advances.
Pichai said it was now focusing effort and computing power on training Gemini 4, their next frontier model, and said the pace of Google’s model releases would pick up.
As AI spending rises, Alphabet has taken on nearly $100 billion in debt and in June moved to raise about $85 billion in its first share sale in more than two decades – a sharp reversal after years of buying back its own shares.
The spending is aimed at meeting a swelling backlog of cloud contracts that rose to $514 billion at the end of the quarter from about $460 billion in the prior one.
Ashkenazi said the company was drawing on the cash flow from its operations as well as debt and equity to fund the spending, noting Google had no intention to sell additional shares beyond what has been announced.
“We also want to make sure we have a ... resilient balance sheet and a strong balance sheet,” she said. – Copyright The Financial Times Limited 2026
