Google AI spending pushes cash flow negative

Google AI spending pushed Alphabet’s free cash flow into negative territory, a sharp turn that rattled investors and underscored how costly the race for artificial intelligence has become. Alphabet’s share price fell nearly seven percent on Thursday after the company said it now expects to spend as much as $205 billion this year, most of it tied to AI projects and infrastructure.

The company reported free cash flow of negative $5.9 billion, the first time that figure has gone below zero since Google became a public company in 2004, according to its financial records. Free cash flow is the money left after operating costs and investments are paid. Alphabet’s quarterly revenue still rose to $119.8 billion, up 23 percent from the same period a year earlier, but that growth did not offset the scale of spending.

Alphabet chief financial officer Anat Ashkanazi told analysts the company’s negative cash flow came from higher capital expenditures, which were almost entirely connected to AI. She said Alphabet spent $45 billion in the second quarter, with 60 percent of that going to servers and 40 percent to data centres. The company had already put $36 billion into capital spending in the first quarter.

Ashkanazi said demand for AI remained ahead of the company’s investment pace. “As long as we see these attractive opportunities to invest, we will continue to invest,” she said. Chief executive Sundar Pichai described the move toward AI tools as still being in the “early innings” of a wider shift and said the company’s plans for turning that spending into returns were disciplined. He also said there was still substantial work left before frontier capabilities became user-facing products.