Google burning through cash with spiralling AI costs

What the report says

BBC World News reported that Alphabet, Google’s parent company, continued to increase revenue while its heavy artificial intelligence infrastructure spending pushed free cash flow below zero. According to the BBC, Alphabet recorded negative free cash flow of $5.9 billion, described as its first such result in at least 10 years based on past financial records.

The company now expects AI-related investment to reach as much as $205 billion this year, above an earlier estimate of up to $190 billion. Alphabet reported quarterly revenue of $119.8 billion, 23% higher than the same period a year earlier, but its shares fell 4% in after-hours trading. Chief financial officer Anat Ashkanazi told analysts that rising capital expenditure drove the negative cash flow, with second-quarter spending of $45 billion split between servers and data centres.

The BBC also reported that chief executive Sundar Pichai described the AI transition as still being in an early stage and said Alphabet was taking a disciplined approach to generating returns from its investments. The spending underscores the pressure on major technology companies to build computing capacity for AI tools, even when core businesses remain profitable.

In related results cited by the BBC, Tesla also reported negative free cash flow, at $1.1 billion for the second quarter, as it increased investment. Tesla finance chief Vaibhav Taneja said the company was in a large investment cycle and expected capital spending of up to $25 billion this year. Tesla shares also declined 4% in after-hours trading.