Alphabet posted negative free cash flow for the first time in its history in the second quarter, as capital spending on AI infrastructure doubled year over year. Analysts now expect the cash drain to deepen through 2027.
A first-ever cash flow loss
Alphabet reported free cash flow of -$5.9 billion in the quarter ended June 30, compared with positive $5.3 billion in the second quarter of 2025. It marks the first negative free cash flow quarter in the company's history. Yet the swing didn't come from weaker sales.
Revenue jumped 24% year over year, and operating income soared 30%. The shares have risen 10% so far this year as of Sept. 30, and are up 163% over the past 36 months. The cash flow hit instead reflects how much Alphabet is now spending to build out its business.
Capex doubles as the AI buildout accelerates
Capital expenditures jumped 100% year over year to $44.9 billion in the quarter, as Alphabet expands the data center capacity behind its AI push. Management expects capex of $195 billion to $205 billion for all of 2026. From 2021 through 2025, by contrast, the company's cumulative free cash flow totaled $343 billion.
Therefore, the spending shift isn't a one-quarter event. According to consensus analyst estimates cited by The Motley Fool, Alphabet will post an FCF loss of $8.1 billion in the back half of 2026, followed by a $32.4 billion loss in 2027. The company has also raised debt and equity capital to fund the buildout, with long-term debt on the balance sheet at $98.2 billion.
What it means for shareholders
As a result, share buybacks, once a core part of Alphabet's capital allocation policy, have been paused. The company has become riskier from a financial standpoint as it funds a heavier, more capital-intensive operation.
Investors should also note that the price-to-earnings ratio of 17.3 no longer captures the business clearly: the stock trades at 79.2 times free cash flow, reflecting the scale of the current capex cycle. Alphabet still operates across chips, large language models, a growing cloud division, and AI features across its consumer apps and ad technology.
Source: The Motley Fool
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