Alphabet Inc. (NASDAQ:GOOGL) delivered the most profitable quarter in its history. It also delivered something it had never delivered before: negative free cash flow.
Despite reporting record revenue and profit, Alphabet Inc. shares fell over 6% in early trading Thursday as investors focused on one metric that is increasingly defining the AI race: capital expenditures.
Why GOOGL Tumbled After Q2 Earnings
Reported earnings of $9.11 per share looked spectacular at a first glance. Yet, about $6.26 of that came from unrealized gains on equity stakes the company has not sold.
Stripping those out, adjusted earnings of $2.85 slightly missed estimates of $2.89.
But the number investors are focused on is capex, the cash Alphabet spends on physical assets like data centers, servers and networking equipment it expects to use for years.
Alphabet spent $44.9 billion on it in the second quarter. Over the past twelve months capex totaled $132.4 billion, a 98% increase.
Management also raised its 2026 capital spending guidance to between $195 billion and $205 billion, up from the previous $180 billion-$190 billion range. It was the second raise in three months, and analysts had modeled roughly $187 billion.
Chief Financial Officer Anat Ashkenazi said 2027 spending would increase “significantly.”
Capex now absorbs 37.5% of every dollar Google collects in revenue, the highest share in the company’s public life.
Even more striking, operating cash flow – the cash generated from a company’s core operations before spending on investments such as capital expenditures – came in at $39.1 billion.
Capex came in higher.
That left free cash flow, what remains after a company pays for its infrastructure, at negative $5.9 billion.
It was the first negative quarter since Google went public in 2004.
“We had negative free cash flow of $5.9 billion in the second quarter,” Ashkenazi said during the second-quarter earnings call.
Microsoft And Meta Are Fighting The Same Beast
Meta Platforms Inc. (NASDAQ:META) fell roughly 6% in April after lifting its 2026 capex guidance to $125 billion to $145 billion.
Microsoft Corp. (NASDAQ:MSFT) is tracking toward roughly $190 billion for the calendar year. Combined hyperscaler capex is expected to approach $725 billion in 2026.
Meta Platforms shares dropped 3%, while Microsoft eased 1% in Thursday morning trading.
"Tech giants are spending on AI like there’s no tomorrow, but investors have realized it’s tomorrow they care about. They want to see today’s spending turn into tomorrow’s earnings, but so far there’s no sign of this,” said Nic Puckrin, cross-asset analyst and founder of Coin Bureau.
Wall Street is no longer asking whether Big Tech is winning the AI race. They are becoming increasingly concerned about how much winning will ultimately cost.
Read Also: The Economy Looks Fine To Wall Street: AI Capex Doesn't
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