Google reports first negative free cash flow ever as AI spending hits $205 billion

Google just had its first negative cash flow quarter ever due to massive AI spending

Google has reported its financial results for the second quarter of 2026 (PDF), and as usual, the search giant raked in an unfathomable amount of money. Google saw total revenue of $119.8 billion, beating analyst expectations by a comfortable margin. Despite that, the company's stock has taken a hit. Along with all that revenue, Google has announced a further increase in its AI-fueled capital expenditures (or capex). The company is actually spending so much on AI infrastructure that it has negative cash flow for the first time ever. Search was the largest chunk of Google's income, accounting for $63.3 billion. Google Cloud pulled in $24.8 billion, a significant 23.8 percent increase from the first quarter. This shows there is massive demand for Google's AI services. Google also earned $12.9 billion from its subscriptions, platforms, and devices portfolio, as well as $11.1 billion from YouTube ads. The company managed to goose that last one by more than 12 percent since last quarter as it made YouTube ads even longer. A significant chunk of Google's revenue comes from investments. When you subtract those non-cash earnings, Google's operating cash flow for Q2 2026 was about $39.1 billion. That's not the most the company has ever seen, but it's a healthy 40 percent increase from Q2 2025. The problem is that Google's spending has also gone up -- a lot. Before this latest round of financial updates, Google told investors it was expecting $180-190 billion in capital expenditures for 2026. Like other AI-obsessed tech behemoths, Google is burning cash on building and running the data centers powering its AI models. These numbers were already well above the $91 billion Google spent in 2025. The company now says it's planning to spend as much as $205 billion on infrastructure in 2026. As a result of its increasing AI demands, Google reports it spent $44.9 billion expanding its AI footprint in the second quarter, and you don't need an accounting degree to know which number is larger. With $39.1 billion in cash income, this spending left Google with -$5.8 billion free cash flow. To be clear, Google is still profitable -- wildly so. It's also sitting on a war chest of more than $100 billion. But free cash flow is an important metric that goes to the overall health of a business. This is the actual money a company takes in to fund its operations without selling investments or taking out new loans. So it's notable that Google's free cash flow has dipped into negative territory for the first time since going public. Google's stock price took a hit overnight on the news, dropping about 4.5 percent. It has continued to trend downward today. Onward and upward Google's leadership is signaling to investors that this state of affairs is the new normal. The company points out with much fanfare that its capex spending this year will be about six times higher than the $22 billion it spent in 2022 before the AI boom. Google expects spending to be even higher next year, too. Investors have started to question the scale of AI spending, which is expected to top $700 billion industry-wide this year. Tech firms used to be reliable stocks, reporting high profits and juicy margins, but the race to build AI data centers and train new models has changed the landscape. Google is in a better position than most, with a robust ad business and cloud services that pull in plenty of cash. It just wasn't quite enough cash to offset its spending this time. It also designs its own AI chips, and the latest Tensor 8i and 8t are supposed to be more efficient for AI data centers. Where things go from here is uncertain. People are clearly more sensitive to the high cost and lack of profit in AI, so Google's stock price may be in for a minor correction. Things will probably even out for the company if it can continue to compete with other major AI players. Google recently delayed the release of its flagship Gemini 3.5 Pro model, which it says is still in testing with a small number of partners. Reports have suggested that Google is not seeing the kind of gains it needs to remain competitive with the likes of GPT 5.6 and Claude Mythos. Google has also been hit with a wave of resignations among its top AI researchers. The next few months may be pivotal for Google's AI efforts.

AI investment boom puts Big Tech's free cash flow under pressure

July 22 (Reuters) - U.S. hyperscalers are starting to show returns on their artificial intelligence investments, but the rising cost of the buildout is taking a bite out of their free cash flow, and investors are noticing. At their current trajectory, the so-called "hyperscalers" -- Microsoft (MSFT.O), opens new tab, Alphabet (GOOGL.O), opens new tab, Amazon (AMZN.O), opens new tab, Meta Platforms (META.O), opens new tab and Oracle (ORCL.N), opens new tab -- are expected to spend more combined on capital expenditures than they generate in free cash flow by 2027, according to a Reuters analysis of LSEG consensus estimates. The data shows the companies will generate about $340 billion more in annual operating cash flow in 2027 than in 2025, but capex is expected to rise by roughly $534 billion, equivalent to about $1.57 of additional investment for every $1 of additional cash flow. When those companies report earnings, beginning with Alphabet on Wednesday, investors will be looking for signs that the rapid growth in cloud and AI revenue can keep pace with the expected spending surge. The recent performance in the shares suggests concerns. Hyperscalers led the ⁠market rally since the AI buildout began, surging on the promise of future growth. Over the last year, all but one -- Alphabet -- have trailed the S&P 500. "Investors are underestimating how fundamentally AI is changing the Big Tech business model," said Shay Boloor, chief market strategist at Futurum Equities. "These companies were historically valued as asset-light platforms because revenue could scale much faster than capital requirements, but AI is pushing them toward a hybrid model where software, advertising and cloud economics increasingly depend on enormous physical infrastructure spending." The capex estimates cover all spending, not just AI-related expenditures, because companies do not consistently disclose AI-specific investment. Spending on data centers, servers, networking equipment and other cloud infrastructure is largely driven by AI demand, executives have said. The spending outlook is also subject to change. Current-year consensus estimates for the five companies' capex have risen from about $485 billion in January to around $730 billion in July, according to LSEG. There are some signs that AI spending is paying off. Microsoft has said its AI business has surpassed a $37 billion annual revenue run rate, while Amazon reported 28% ⁠growth at its AWS unit in its first quarter. WORRIES ABOUT CASH FLOW Still, for investors, the worry is whether the AI-related cash generation falters while spending persists. Microsoft reported $35.8 billion in operating cash flow in its fiscal second quarter while recording $37.5 billion of capital expenditures, including finance leases. "Earnings growth may not be enough to justify investment if capex is depleting cash. Companies exist to make money, not spend money," said David Russell, global head of market strategy at TradeStation. Amazon said trailing 12-month operating cash flow rose 30% to $148.5 billion in the first quarter, but free cash flow fell to $1.2 billion. Investors seem ⁠most alarmed about Oracle, whose shares have lost 36% so far this year as its free cash flow has turned negative. Its capex as a percentage of operating cash flow has steadily increased, and it plans to raise $45 billion to $50 billion through debt and equity to fund cloud infrastructure expansion. Oracle's capex as a percentage of operating cash flow rose from 47% in fiscal 2022 to 174% ⁠for fiscal 2026, which ended in May, according to LSEG data. Capex came to $55.7 billion in its most recent fiscal year, compared with operating cash flow of $32 billion. The other companies so far have been able to return cash to shareholders. Microsoft, Alphabet and Meta still generated enough free cash flow to cover dividends and buybacks in their latest fiscal ⁠years, according to SEC filings. Buybacks could be at risk if spending remains elevated and AI monetisation takes longer than expected. "Over the next two to three years, companies need to show that AI is driving incremental revenue, expanding margins and improving cash flow," said Freddy Lavric, senior trader at Winthrop Capital Management. "If those financial benefits aren't becoming evident by then, the market will start questioning whether the investment cycle has gone too far." Reporting By Patturaja Murugaboopathy in Bengaluru Editing by Vidya Ranganathan and David Gaffen Our Standards: The Thomson Reuters Trust Principles., opens new tab

Tesla and Alphabet shares slump in premarket trading as AI spending concerns spook investors

Both companies reported negative free cash flow for the second quarter on Wednesday. Alphabet raised its capital expenditure forecast for this year to $195 billion to $205 billion and warned of higher figures in 2027. The Google parent company's previous projection was for capex between $180 billion and $190 billion. Tesla, meanwhile said capex surged 142% year-on-year in the second quarter to $5.79 billion. The company said it expects more than $25 billion in capex this year. Management at both companies looked to calm investor fears over spending. "This is a massive capex year. I'm confident that all the things that we're investing in will yield incredible returns. Really, maybe the best capex returns that we've ever seen," Tesla CEO Elon Musk said on the earnings call on Wednesday. Musk talked up the company's future initiatives around semiconductor production and Optimus, Tesla's humanoid robot, as it highlighted where the spending was going. Tesla is "installing the first-generation lines for Optimus," and will "start production soon," the company said in its earnings presentation. Alphabet's CEO said the spending increase "is primarily due to an acceleration in the delivery of capacity to meet growing demand." The tech giant has maintained that it does not have enough computing capacity to meet the AI demand that it is seeing. Spending figures at both companies offset some bright spots. There were signs that some of Google's investments were beginning to pay off. Google's cloud revenue jumped 82% to $24.8 billion, beating forecasts. At Tesla, the company's core automotive business brought in $20.52 billion in revenue, up 23% year-on-year. -- CNBC's Lora Kolodny and MacKenzie Sigalos contributed to this report.

Google records its first negative free cash flow since going public as its AI spending explodes

Serving tech enthusiasts for over 25 years. TechSpot means tech analysis and advice you can trust. What just happened? In a perfect illustration of how much money companies are pouring into their AI investments, Google has just recorded its first negative free cash flow since it went public more than two decades ago. It comes as the tech giant said its capital expenditure is expected to reach $205 billion this year, up from previous guidance of $180 billion to $190 billion. Google said its free cash flow - the cash it had remaining after paying for operations and investments - for the three months to the end of June was at negative $5.9 billion. The revelation, combined with the announcement that it would be spending even more money on AI hardware and infrastructure, sent the company's stock down 4% in after-hours trading. It's not just this year that Google is planning on spending billions. Anat Ashkenazi, parent company Alphabet's chief financial officer, said capital expenditures will also increase significantly in 2027. Bloomberg expects the figure to reach $262 billion next year. "We expect that free cash flow will remain under pressure driven by our investments in technical infrastructure, which enable us to capitalize on the AI opportunity and continue to drive attractive returns," Ashkenazi said. Courtesy of App Economy Insights Ashkenazi added that the company spent $45 billion in the second quarter, with 60% of the cost going towards servers and 40% being used for data centres. Google isn't the only company facing this position; Tesla has also reported negative cash flow of $1.1 billion. It's the first time this has happened in more than two years as Elon Musk's company continues spending billions on AI. Vaibhav Taneja, Tesla's chief financial officer, said its capital spending could more than double this year to as much as $25 billion. Tesla stock also dropped by 4%. Meta, Microsoft, and Amazon are also expected to see their free cash flow turn negative next year. Although the trillions being spent on AI are making the industry look increasingly like a bubble that's getting ever closer to bursting, Ashkenazi insists that AI demand still outpaces the investments being made. "As long as we see these attractive opportunities to invest, we will continue to invest," she said. Google CEO Sundar Pichai admitted that most users aren't yet experiencing many benefits from the obscene amount of money being spent on AI. "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." The rising cost of memory, which is ironically being driven by the AI craze, is contributing to these higher capital expenditures. But investors are becoming increasingly worried about all this money being spent for little return. Big names within the industry are trying to calm fears. Nvidia's Jensen Huang believes agentic AI will cause hyperscalers' cash flow to grow, while Adata chairman Chen Li-bai thinks we shouldn't even be discussing the subject of an AI bubble until 2040 or even 2050. It was reported yesterday that Amazon, Meta, Microsoft, and other US tech giants are carrying a collective "hidden" debt of over $1.65 trillion, driven largely by massive spending on AI infrastructure.

Google burning through cash with spiralling AI costs

Google parent Alphabet saw its business continue to grow in recent months, yet growing spending on artificial intelligence (AI) infrastructure put its leftover cash into negative territory. The company's free cash flow, the cash it maintained after paying for operations and investments, came in at negative $5.9bn (£4.3bn) for the first time in at least a decade, according to its past financial records. Alphabet's spending on AI is now expected to hit as much as $205bn this year, an increase from $190bn, as major tech companies race to build around a new wave of the technology. Meanwhile, Alphabet's combined quarterly revenue hit $119.8bn, up 23% compared with the same time last year. But the company's stock fell 4% in after hours trading. Anat Ashkanazi, Google's chief financial officer, noted on a call with financial analysts that the company had shown negative free cash flow due to growing capital expenditures, essentially all of which was related to AI spending. She noted that the company spent $45bn in the second quarter, with 60% of the cost going towards servers and the remaining 40% going towards data centres. Alphabet's capital spending was $36bn in the first quarter of this year. Ashkanazi said on the call that when it comes to AI, "the demand still outpaces that investment". "As long as we see these attractive opportunities to invest, we will continue to invest." Sundar Pichai, Google's chief executive, said that the technological shift to AI tools and capabilities still "feels like early innings in a shift across multiple areas" and that the company's plans around generating financial returns on its 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."

Google's burning through cash despite record profits, and take a wild guess on what

These increased expenses were reportedly because of new AI infrastructure and increased R&D costs. Artificial Intelligence, now known in every household as AI, has long been positioned as the pioneering technology that frees humans from their mundane obligations and lets them focus on creative pursuits. During its rise since the launch of ChatGPT, however, AI has proven to excel at routine creative tasks like writing and generating images, videos, and even music. And that has been used as a cover to discharge the human workforce for better financial rewards. While the results may be contentious, and unique for companies now shifting workloads to AI, there's a clear money pattern that cannot be ignored, and that has to do with the record money spent on building core AI resources. Google's latest earnings call verifies that notion. Google's parent company, Alphabet, announced its Q2 earnings. It said revenue grew by 24% year-on-year in Q2 2026, with quarterly revenue hovering around $120 billion. This accounts for one of the highest profits Google's parent has made in, like, ever. The biggest contributor to that growth was Google Cloud Platform, which includes enterprise AI solutions, AI infrastructure, and the core cloud services for corporate clients, contributing roughly $25 billion in revenue during the period. Interestingly, part of that comes from Google's resources commissioned by rival Anthropic. Alphabet's other avenues, including Google Ads, YouTube Ads, and other subscription-led services, also recorded higher YoY revenue. However, one key area where Google lost a major chunk this quarter is its liquid cash. According to the latest balance sheet, Alphabet posted a free cash flow of negative $5.855 billion. According to the BBC, this is the first time in 10 years that Google has posted negative cash flow. This is driven by increased capital expenditure of $44.9 billion, almost twice the capex of $22.4 billion last year. Most of these expenses were notably incurred due to increasing AI-related expenses, which include building new infrastructure (data centers, servers, and TPUs), along with increased AI R&D expenses. According to rough estimates by analysts, Google's AI-related spending may scale to roughly $205 billion in this financial year. It's worth pointing out that instead of dipping into its cash reserves, Alphabet raised new capital to the tune of $85 billion, including a $10 billion investment from Berkshire Hathaway. That's why Alphabet's total reserve of cash equivalents and securities rose from $127 billion at the end of Q1 to nearly double, at $242.5 billion, at the end of Q2. Alphabet isn't the only one excessively spending on AI infrastructure. According to OpenAI's recently leaked financials, the company's losses widened in 2025 as its spending increased to $34 billion, more than quadrupling its losses compared to 2024. Exuberant spending is not just the case with companies like Google and OpenAI, but also smaller companies relying on AI. In recent months, we've seen a shift from tokenmaxxing to reduced spending and a return to reliance on the human workforce due to unprecedented AI operational costs. Whether that's the beginning of the pricking of the AI bubble is something difficult to say, but Alphabet's overall ballooning profits suggest it's not preparing for a slowdown anytime soon.

Google Free Cash Flow Turns Negative Due to Massive AI Spend

Google's free cash flow for the second quarter of 2026 turned negative for the first time in the tech giant's history as a publicly traded company, driven by record spending on artificial intelligence. Google ended the quarter with a negative free cash flow of $5.9 billion, company executives shared in the earnings call, and updated expectations to spend up to $205 billion in 2026, up from previous guidance of $180 billion to $190 billion. The capital expenditures will also "increase significantly in 2027," parent company Alphabet's chief financial officer Anat Ashkenazi said on the call. Analysts expect that number to at least hit $262 billion, according to Bloomberg. The reason? Usual suspect: the AI investment boom. "We expect that free cash flow will remain under pressure driven by our investments in technical infrastructure, which enable us to capitalize on the AI opportunity and continue to drive attractive returns," Ashkenazi said. The tech industry is pouring trillions of dollars into building out supply for what they claim is unprecedented AI demand. But some experts fear the investment is simply too big and unwarranted, raising fears of a potential AI bubble. The free cash flow of the four AI hyperscalers -Google, Meta, Microsoft and Amazon- was expected to go negative by 2027 after the eye-watering capex commitments announced in the last round of earnings. Some investors are worried that Silicon Valley might be recklessly burning through cash in its AI buildout goal with limited returns. If the returns on that investment don't pan out as expected, it's bound to hit Nvidia's financials as well, considering that the chipmaker counts all four hyperscalers as major customers. That's why Nvidia CEO Jensen Huang has spent the last couple of months trying to ease Wall Street worries over this scenario, going on to say in the company's earnings call in March that he is "confident" that the hyperscalers' cash flow will grow, because "we have now seen the inflection of agentic AI and the usefulness of agents across the world in enterprises everywhere." That fear is also one of the likely reasons why Apple, which has largely steered clear from the AI spending gold rush at the expense of lagging peers, has outperformed its hyperscaler peers in the stock market and even briefly dethroned Nvidia as the most valuable company last week. To quell worries at least a bit for Google fanatics, the company did provide numbers showing a pretty robust cloud business. Cloud sales hit $24.77 billion for the quarter, up a whopping 82% from last year. "We are seeing very strong demand both from external cloud customers as well as across the business, and our goal is to invest as long as we see an attractive return on that investment," Ashkenazi said. Despite the success on the cloud side and the 24% overall revenue growth, sales came in below investor expectations for the company's bread and butter, Search. That's even though Google CEO Pichai said Search usage hit an all-time high this summer thanks to the World Cup. Also putting pressure on Google is its performance in the AI products scene. Google burst onto the frontier AI models scene with Gemini 3 and its image generator Nano Banana Pro last year, causing much of the internet to question whether OpenAI's leading position in the industry was officially under threat from the tech giant. But since the stellar debuts in November 2025, the company has been rather silent as competitors like Anthropic boast flashy debuts one after another. Google did, however, unveil Gemini 3.6 Flash earlier this week, but the model appears to lag behind the latest releases from OpenAI and Anthropic in most major benchmarks, and even behind Musk's Grok 4.5 on some tests. Meanwhile, the promised Gemini 3.5 Pro, its most powerful flagship model, is reportedly months behind schedule. On Wednesday's earnings call, Pichai said the Gemini 3.5 Pro model was currently in testing, and also teased Gemini 4, promising an ambitious new model. "We are now training Gemini 4, and we're being very ambitious with it," Pichai said. "We wanted to compete at the frontier level of where the frontier will be when Gemini 4 comes out, and so we are applying a lot of our compute and effort in that direction," Pichai said. "But with that, we are creating a baseline on top of which you will see us rapidly iterate with subsequent model releases, and so picking up pace and releasing models almost at a monthly cadence is part of our roadmap as we are building Gemini 4."

Big Tech's AI spending is catching up with its cash flow

Combined capital spending at the largest cloud operators is on track to overtake the cash their core businesses generate, and free cash flow is where the strain shows first. The four largest US technology companies are on course to spend close to $700bn on artificial intelligence infrastructure this year, and the cost is starting to show up in the one figure that is hard to dress up: free cash flow. An analysis by Reuters, found that combined capital spending across the major cloud operators is set to overtake the cash their core businesses generate. Wall Street's consensus for this year's AI capex has climbed from roughly $485bn in January to about $730bn by July, on the figures Reuters compiled. The sharpest early warning came from Amazon, whose free cash flow fell to $1.2bn on a trailing 12-month basis in the first quarter, down from about $26bn a year earlier, even as operating cash flow rose 30% to $148.5bn. The mechanics are straightforward. Capital spending is growing far faster than the money coming in. Epoch AI estimates that hyperscaler capex is expanding at roughly 70% a year while operating cash flow grows about 23%, which puts aggregate spending on track to overtake operating cash flow around the third quarter of 2026. Reuters put the gap in blunt terms. Between 2025 and 2027, capital expenditure across Microsoft, Alphabet, Amazon, Meta, and Oracle is expected to rise by about $534bn, against a roughly $340bn increase in operating cash flow. That works out at $1.57 of capex for every additional dollar of cash the businesses generate. Not every company is under the same strain. Microsoft reported $37.5bn of capital spending, including finance leases, in its fiscal second quarter, against $35.8bn of operating cash flow, and has guided towards roughly $190bn for the year. Alphabet and Meta are still producing enough cash to cover dividends and buybacks, at least for now. The guidance keeps climbing regardless. Meta has said it will spend up to $145bn this year, and Alphabet has reset its own bar higher for a second consecutive quarter. Asked about the return on all that outlay, Meta chief executive Mark Zuckerberg told analysts in April that it was "a very technical question," which is roughly the answer the market has been given across the sector. Oracle is furthest down the road. Its capex reached 174% of operating cash flow in fiscal 2026, up from 47% four years earlier, and its free cash flow has turned negative. The company's credit rating sits one notch above junk, and it has signalled plans to raise between $45bn and $50bn to keep building. That points to the wider shift. Most of the hyperscalers have already turned to external financing, whether cash reserves, bond issuance, or equity, to fund the build-out rather than pay for it out of operations. Amazon, Alphabet, and Meta have all tapped the bond markets in recent months, at a scale that has begun to reshape corporate debt issuance on both sides of the Atlantic. The question investors keep returning to is whether the spending pays off. "AI is pushing them toward a hybrid model where software, advertising and cloud economics increasingly depend on enormous physical infrastructure spending," Shay Boloor of Futurum Equities told Reuters. Others are more cautious about the timeline. David Russell of TradeStation warned that "earnings growth may not be enough to justify investment if capex is depleting cash," while Freddy Lavric of Winthrop Capital said companies would need two to three years to show the spending translates into incremental revenue and improving margins. For now, the accounting cushions the blow. Because capital spending is depreciated over years rather than booked upfront, all of the big spenders remain profitable, and increasingly so. Free cash flow is simply where the pressure lands first. The next test comes with the quarterly earnings due in the coming weeks. Investors will be watching capex guidance at least as closely as revenue, and for once the two numbers may well pull in opposite directions.

Alphabet and Tesla test Wall Street's patience as AI spending overshadows growth

Alphabet and Tesla both reported negative free cash flow in the second quarter. When Alphabet and Tesla kicked off tech earnings season on Wednesday, one theme became immediately clear: AI spending is under a microscope. Both companies reported negative free cash flow for the latest quarter and told investors to prepare for higher capital expenditures. They both also reported better-than-expected revenue, but that wasn't enough to prevent an after-market selloff, with Tesla shares sliding 4% and Alphabet down more than 3%. It's a potentially ominous sign for the tech industry, particularly the other megacaps, which are mostly set to report quarterly results next week. Meta and Microsoft are scheduled to report next Wednesday, followed a day later by Amazon and Apple. Much of the AI boom to date has been fueled by historic levels of infrastructure spending among a small crop of companies, including hefty investments into model developers OpenAI and Anthropic. But the recent emergence of cheaper open-source models, largely out of China, along with signs that corporate America is getting more frugal when it comes to spending on AI services, has raised concerns about the future returns on investment. Heading into Wednesday's reports, Alphabet's stock was already on pace for its third straight monthly decline after surging in April, while Tesla shares were down 11% in July and 17% for the year. The tech-heavy Nasdaq has dropped about 5% since reaching a record in early June. While Alphabet and Tesla are both spending at unprecedented levels, their numbers vary dramatically. Google's parent company forecast capex for this year of $195 billion to $205 billion and warned of higher numbers in 2027. Prior guidance was for spending of $180 billion to $190 billion. At the top end of the new range, Alphabet could be the biggest spender in tech this year, as Amazon's latest guidance was for more than $200 billion, though that number may increase when the company reports results next week. Google and its hyperscaler peers are building out data centers packed with advanced chips so they can provide the computing power necessary to build and run the leading AI models and the services they power. Mizuho analysts wrote in a note that Google's capex increase was "broadly anticipated," and that the overall story is positive, largely due to the surge in cloud revenue, which jumped 82% from a year earlier, blowing past estimates. Cloud margins expanded and usage of Google's Gemini model accelerated. "As such we are surprised the stock is trading off after hours and would expect it to recover in trading tomorrow," wrote the analysts, who recommend buying the stock. Tesla reiterated expectations for more than $25 billion in capex this year, which would represent about 200% year-over-year growth. In the second quarter, capex soared 142% to $5.79 billion. The company boosted spending on self-driving technology, AI and robotics initiatives that CEO Elon Musk has been touting for years. Tesla is now retooling its factories to make the two-seater driverless Cybercab, and to manufacture Optimus humanoid robots, which are still being developed, while also preparing to start construction of a sprawling AI chip-manufacturing plant in Texas. "We should be spending on capex as fast as we can spend, as fast as we can without it being too wasteful," Musk said on the earnings call. He added, "It's ok to be a little less capital efficient if we get things done sooner." For both companies, the aggressive growth plans are resulting in a major hit to their cash holdings. Free cash flow at Tesla turned negative in the quarter, with a deficit of $1.1 billion after the company generated $146 million in free cash flow a year ago and $1.44 billion in the first quarter of 2026. "This is a massive capex year but we are confident that all the things that we are investing in will yield incredible returns," Musk said. He compared Tesla's spending and building in "many different arenas simultaneously," to that of Henry Ford with the Model T. "I think probably this is the fastest industrial scale-up since World War II in America," Musk said. The numbers at Alphabet were even more stark, with free cash flow sinking to negative $5.9 billion after the company, which is lauded for its fat margins from online ads, generated almost $25 billion in free cash flow a year ago. "We expect the free cash flow will remain under pressure, driven by our investments in technical infrastructure, which enables us to capitalize on the AI opportunity and continue to drive attractive returns," CFO Anat Ashkenazi said on the earnings call. Most of the company's $44.9 billion in capex in the second quarter went to infrastructure to support the AI buildout, Ashkenazi said. In addition to building its own data centers, Google executives said they also plan to rely on capacity from third-party cloud providers to meet feverish computing demand, building on a recent compute deal with Musk's SpaceX, which now owns xAI and its Memphis data centers. The results on Wednesday did nothing to squash the enthusiasm of bullish analysts and investors. Keith Fitz-Gerald, principal at investment consulting firm Fitz-Gerald Group, said that at Tesla, "profitability is being sacrificed for infrastructure" just as it was previously at companies including Amazon and Netflix. "I expect it to pay off in spades over the next 12-24, even 36 months," Fitz-Gerald wrote in a note after the report. And Rebecca Wettemann, CEO of tech research firm Valoir, said in an email that Google's core business remains strong and that its AI investments are generating returns. "Google's momentum should calm some market fears about AI overspending," she wrote. "Strong performance across its businesses show search isn't dead, advertising still matters, and cloud investment is still a good bet." Choose CNBC as your preferred source on Google and never miss a moment from the most trusted name in business news.

AI investment boom puts Big Tech's free cash flow under pressure

Big tech firms are investing heavily in artificial intelligence infrastructure. Their capital expenditures may soon exceed free cash flow generation. Microsoft and Amazon show early AI revenue growth signs. However, investors worry about sustained spending and cash depletion. Oracle's shares have fallen significantly amid negative free cash flow. U.S. hyperscalers are starting to show returns on their artificial intelligence investments, but the rising cost of the buildout is taking a bite out of their free cash flow, and investors are noticing. At their current trajectory, the so-called "hyperscalers" -- Microsoft, Alphabet, Amazon, Meta Platforms and Oracle -- are expected to spend more combined on capital expenditures than they generate in free cash flow by 2027, according to a Reuters analysis of LSEG consensus estimates. The data shows the companies will generate about $340 billion more in annual operating cash flow in 2027 than in 2025, but capex is expected to rise by roughly $534 billion, equivalent to about $1.57 of additional investment for every $1 of additional cash flow. When ⁠those companies ⁠report earnings, beginning with Alphabet on Wednesday, investors will be looking for signs that the rapid growth in cloud and AI revenue can keep pace with the expected spending surge. The recent performance in the shares suggests concerns. Hyperscalers led the market rally since the AI buildout began, surging on the promise of future growth. Over the last year, all but one -- Alphabet -- have trailed the S&P 500. "Investors are underestimating how fundamentally AI is changing the Big Tech business model," said Shay Boloor, chief market strategist at Futurum Equities. "These companies were historically valued as asset-light platforms because revenue could scale much faster than capital requirements, but AI is pushing them toward a hybrid model where software, advertising and cloud economics increasingly depend on enormous physical infrastructure spending." The ⁠capex estimates cover all spending, not just AI-related expenditures, because companies do not consistently disclose AI-specific investment. Spending on data centers, servers, networking equipment and other cloud infrastructure is largely driven by AI demand, executives have said. The spending outlook is also subject to change. Current-year consensus ⁠estimates for the five companies' capex have risen from about $485 billion in January to around $730 billion in July, according to LSEG. There are some signs that AI spending is paying off. Microsoft has said its AI business has surpassed a $37 billion annual revenue run rate, while Amazon reported 28% growth at its AWS unit in its first quarter. WORRIES ABOUT CASH FLOW Still, for investors, the worry is whether the AI-related cash generation falters while spending persists. Microsoft reported $35.8 billion in operating cash flow in its fiscal second quarter while recording $37.5 billion of capital expenditures, including finance leases. "Earnings growth may not be enough to justify investment if capex is depleting cash. Companies exist to make money, not spend money," said David Russell, global head of market strategy at TradeStation. Amazon said trailing 12-month operating cash flow rose 30% to $148.5 billion in the first quarter, but free cash flow fell to $1.2 billion. Investors seem most alarmed about Oracle, whose shares have lost 36% so far this year as its free cash flow has turned negative. Its capex as a percentage of operating cash flow has steadily increased, and it plans to raise $45 billion ⁠to $50 billion through debt and equity to fund cloud infrastructure expansion. Oracle's capex as a percentage of operating cash flow rose from 47% in fiscal 2022 to 174% for fiscal 2026, which ended in May, according to LSEG data. Capex came to $55.7 billion in its most recent fiscal year, compared with operating cash flow of $32 billion. The other companies so far have been able to return cash to shareholders. Microsoft, Alphabet and Meta still generated enough free cash flow to cover dividends and buybacks in their latest fiscal years, according to SEC filings. Buybacks could be at risk if spending remains elevated and AI monetisation takes longer than expected. "Over the next two to three years, companies need to show that AI is driving incremental revenue, expanding margins and improving cash flow," said Freddy Lavric, senior trader at Winthrop Capital Management. "If those financial benefits aren't becoming evident by then, the market will start questioning whether the investment cycle has gone too far."

Did Google and Tesla just break AI trade's bull case? By Investing.com

Investing.com -- Alphabet burned $5.9 billion in free cash flow in the second quarter of 2026 -- its first cash burn on record. Tesla burned another $1.1 billion. Together, the two reports have crystallized a fear that has been building all year: Big Tech's AI infrastructure build-out is consuming capital faster than it can generate returns. Every major hyperscaler in the group traded sharply lower on Thursday. Amazon fell nearly 5%, Meta dropped almost 4%, and Microsoft slid more than 2%. The Philadelphia Semiconductor Index had already fallen more than 20% from its late-June peak before this week's results. The market is no longer asking whether AI spending is justified. It is asking whether the returns will ever arrive in time. The Numbers That Spooked Wall Street Alphabet's Q2 results were not weak on the surface. Revenue came in at $119.8 billion, beating the $116.9 billion consensus. Google Cloud surged to $24.8 billion -- an 82% increase. Yet investors fixated on one line: capital expenditure of $44.9 billion in a single quarter, up 100% year over year. Almost all of it went to AI technical infrastructure. The free cash flow swing was the detail that proved hardest to absorb. Alphabet brought in $39.1 billion in operating cash flow but spent $44.9 billion on capex. The company had long been valued in part on prodigious cash generation; a negative reading -- even a single quarter's worth -- changes the narrative structurally. For the full year, Alphabet raised its capex guidance to $195-205 billion, up from a prior $180-190 billion range, and warned spending would climb further in 2027. CEO Sundar Pichai told investors that "our AI investments are redefining what's possible across every part of our business." The market's response was unambiguous: Alphabet fell more than 3% in after-hours trading, then extended losses into Thursday. Tesla's situation carries different dynamics but the same market signal. Vehicle deliveries of 480,126 beat forecasts, yet automotive gross margin came in at 16.3% against expectations of 18.04%. The cash burn traced directly to surging capex -- $5.8 billion in the quarter, up 142% -- as the company accelerates its AI and robotaxi programs. Elon Musk told analysts: "This is a massive capex year, but I'm confident that all the things that we are investing in will yield incredible returns." Investors responded by sending TSLA down 13.5% on Thursday. The Structural Problem: Capex Is Outrunning Cash Flow What makes the Alphabet and Tesla reports particularly potent is that they are not isolated. A Reuters analysis of consensus estimates found that Microsoft, Alphabet, Amazon, Meta, and Oracle are collectively on track to spend more on capex than they generate in free cash flow by 2027. The gap is stark: capex across those five companies is expected to rise by roughly $534 billion between 2025 and 2027, while operating cash flow grows by only $340 billion over the same period -- about $1.57 of additional investment for every $1 of additional cash flow. This structural shift matters because these companies were historically valued on an asset-light model: software margins, minimal physical infrastructure, and robust free cash flow that funded buybacks and dividends. The AI era is dismantling that model in real time. Bull Case, Base Case, Bear Case Bull case. Alphabet's cloud revenue growth of 82% demonstrates that the revenue engine is responding to the investment. The cash flow dip is transitory: a period of unusually dense infrastructure build-out that compresses near-term FCF but builds a durable moat. If Meta and Microsoft report next week with similarly strong cloud and AI-services revenue growth alongside credible timelines for capex normalization, the selloff may prove just a temporary mishap. Base case. Capex remains elevated but revenue growth keeps pace. The hyperscalers collectively accept lower free cash flow margins through 2027, buyback programs slow, and valuations compress modestly. The sector trades in a range rather than re-rating significantly in either direction. Bear case. If Meta or Microsoft miss on cloud revenue while guiding capex higher, the market could reinterpret Alphabet's cash burn not as a temporary inflection point but as the leading edge of a sector-wide profitability squeeze. The Philadelphia Semiconductor Index's 20% decline from its peak already suggests investors are primed to punish any signal that AI monetization is lagging the build-out cost. What to Watch Next Week Meta reports on July 29 with capex guidance of $125-145 billion for 2026, up from roughly $70 billion in 2025. Analysts expect Q2 revenue of around $60 billion and EPS of $7.19. The swing factor is whether ad revenue growth can offset the capex squeeze on margins. Microsoft also reports on July 29, with plans for $190 billion in fiscal 2026 capex. Cloud revenue reached $54.5 billion last quarter, up 29% year over year, with AI annual run rate hitting $37 billion, growing 123%. The company carries a $627 billion contracted backlog that could convert to revenue on schedule -- the strongest revenue visibility in the group. Amazon follows on July 31. Investors will focus less on AWS revenue than on whether Amazon provides any timeline for when its own AI spending cycle peaks. Bottom Line Alphabet's first-ever cash burn and Tesla's deepening negative FCF are not isolated events. They are the leading indicators of a sector-wide transformation: the software era's asset-light model is giving way to the AI era's infrastructure-heavy reality. The hyperscalers are collectively spending $1.57 on capex for every $1 of additional operating cash flow they generate. That math works only if the revenue follows. The market is no longer willing to take that on faith. Next week's reports from Meta, Microsoft, and Amazon will determine whether this week's selloff was a healthy reality check or the beginning of a broader revaluation.