Google parent Alphabet has continued to grow its business in recent months, but increased spending on artificial intelligence (AI) infrastructure has left its remaining cash in negative territory.
Past financial records show the company’s free cash flow (cash retained after paying operating and investment costs) was negative $5.9 billion (£4.3 billion) for the first time in at least a decade.
Alphabet’s AI spending is expected to increase from $190 billion to $205 billion this year as major tech companies race to build a new wave of technology.
Meanwhile, Alphabet’s total quarterly revenue was $119.8 billion, up 23% year over year.
However, the company’s shares fell 4% in after-hours trading.
Anat Ashkanazi, Google’s chief financial officer, noted on a call with financial analysts that the company had negative free cash flow due to increased capital spending, which was essentially all related to AI spending.
She said the company spent $45 billion in the second quarter, 60% of which was on servers and the remaining 40% on data centers.
Alphabet’s capital expenditures in the first quarter of this year were $36 billion.
“Demand still outstrips investment” when it comes to AI, Ashkanazi said on the call.
“We will continue to invest as long as these attractive investment opportunities remain.”
Google CEO Sundar Pichai said the technological shift toward AI tools and capabilities still “feels like the early stages of a transformation across a variety of areas” and that the company’s plans for generating a financial return on its spending are “disciplined.”
“When you look at what we can do with the first feature, there’s still a lot of work to be done to translate that into a user experience, so this seems like a unique opportunity that could yield huge returns.”
Rachel Winter, a partner at asset management firm Killik & Co, said there was some surprise among investors about how much money Google was spending.
“They said the total they would spend this year would be between $195 billion and $205 billion. So these are huge numbers. And the fact that the stock was down about 3.5% in after-hours trading when the results came out suggests there is some concern about those levels.”
Tesla, the electric car company run by Elon Musk, also reported negative free cash flow of $1.1 billion in the second quarter on Wednesday due to increased costs of its own investments.
This is the first time the company has had negative cash reserves in two years, according to financial records.
Tesla Chief Financial Officer Vaibhav Taneja said on a call with analysts that the company will spend $25 billion this year, more than double its capital spending in 2025.
He added that Tesla is in a “massive investment cycle” and that spending will increase further over the next three years.
Tesla shares also fell 4% in after-hours trading.
