- Alphabet reported $119.8 billion revenue in the second quarter.
- Google is burning through cash with spiralling AI costs, recording a negative free cash flow of $5.9 billion for the first time in at least a decade.
- Alphabet's cash burn has raised alarm for Big Tech as AI spending climbs, with expectations to spend as much as $205 billion this year, a $15 billion increase from previous estimates.
- Google's chief financial officer, Anat Ashkanazi, noted that the negative cash flow was due to growing capital expenditures primarily related to AI spending.
- Alphabet's share price dropped by more than 7% following the announcement of its cash burn.
- Investors are concerned about the sustainability of Alphabet's spending as the company leans on debt and share sales to fund its operations.
Alphabet's revenue reached $119.8 billion in the second quarter, but the company reported a negative free cash flow of $5.9 billion for the first time in a decade.
Google's chief financial officer, Anat Ashkanazi, attributed this cash burn to escalating capital expenditures, primarily for AI.4
The company plans to spend $205 billion this year, a $15 billion increase from previous estimates, raising alarms among investors.
Sundar Pichai, CEO of Google, emphasized that the shift towards AI is still in its early stages, stating, "As long as we see these attractive opportunities to invest, we will continue to invest."
Despite the cash burn, Google Cloud reported an impressive 82% growth, indicating strong demand for AI computing power.
However, analysts predict that Alphabet's cash flow will continue to decline, with expectations of further cash burns in 2026.
Alphabet's share price fell by more than 7% following the announcement, reflecting investor concerns about the sustainability of its spending.5
The company's capital expenditures are projected to nearly double this fiscal year, with a capex-to-revenue ratio expected to rise from 23% to 41%.
Charu Chanana, chief investment strategist at Saxo Markets, warned that investors will focus on whether AI revenue can outpace rising costs.
“Alphabet posted a $5.9 billion free cash flow loss in Q2, its first since going public, as capital spending on AI servers and data centers surged to $45 billion. Share price fell over 7% after the news, dragging down Meta and Amazon as markets worry about persistent AI cost pressures.”
BBC
