Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Google burned through cash in the second quarter for the first time since going public decades ago as gargantuan 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-month period to end June turned to -$5.9bn, much more than analysts had expected, as it increased its spending plans for data centres and other AI hardware for the second time this year.
Chief financial officer Anat Ashkenazi said capital expenditures in 2026 would be $195bn-$205bn, up from previous guidance of $180bn-$190bn. The stock dipped nearly 3 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.
Google said AI spending was driving accelerating revenues at its cloud unit, which reported 82 per cent growth from a year earlier to $24.8bn in the period. Its core search advertising business grew 17 per cent on year to $63.3bn, slightly below expectations.
The two business lines helped power total revenue to $120bn, from $96.4bn a year ago, beating the analysts’ average estimates of $117bn, Google’s parent company Alphabet said on Wednesday.
Sundar Pichai, Google’s chief executive, told investors the period “was an amazing quarter” and praised the company’s “differentiated, ‘full-stack’ approach to AI”.
Google in April lifted its expected capital expenditure spending for the year to as much as $190bn and said it would rise further in 2027. The group reported second-quarter capex increased to $44.9bn.
Net income quadrupled to $112bn, beating analysts’ expectations of $35.6bn, according to Visible Alpha data, 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 $40.8bn, 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.
It once funded such investment from the cash thrown off by search, but the rising bills have begun to strain its finances. Alphabet has taken on nearly $100bn in debt and in June moved to raise about $85bn 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 $514bn at the end of the quarter from about $460bn in the prior one. Cloud operating income more than tripled to $8.8bn.
Credit: Source link
