Google parent Alphabet has seen its business continue to grow in recent months, but increased spending on artificial intelligence (AI) infrastructure has put the balance in a negative position.
The company’s free cash flow, the cash it kept after paying for operations and investments, hit $5.9 billion (£4.3bn) for the first time in at least a decade, according to its latest financial filings.
Capital spending on AI is now expected to reach $205bn this year, up from $190bn, as major tech companies rush to create a new wave of technology.
Meanwhile, Alphabet’s consolidated quarterly revenue reached $119.8bn, up 23% compared to the same period last year.
But the company’s stock fell 4% in after-hours trading.
Anat Ashkanazi, chief financial officer at Google, noted in a call with financial analysts that the company showed negative free cash flow due to increased capital expenditures, essentially all related to the use of AI.
He said the company spent $45bn in the second quarter, with 60% of the spend going to servers and the remaining 40% to data centres.
Alphabet capital spending was $36bn in the first quarter of this year.
Ashkanazi said on the phone that when it comes to AI, “demand still outstrips investment”.
“As long as we see these attractive investment opportunities, we will continue to invest.
Sundar Pichai, Google’s chief executive, said that the technological shift to AI tools and capabilities “still feels like the first innings of change in many areas” and that the company’s plans for generating financial returns from its use are “disordered”.
“What I see with what you can do with frontier capabilities, there’s still a lot of work to be done to translate that into an experience for our users. So that looks like an amazing opportunity with an amazing return.”
Rachel Winter, a partner at wealth management firm Killik & Co, said there was some surprise among investors about how much Google was spending.
“They said this year the total they’re going to spend will be between $195bn and $205bn. So these are big numbers. And I think the fact that stocks were down about 3.5% in after-hours trading when the results came out, that suggests there’s a little bit of concern about those levels.”
Tesla, the electric car company controlled by Elon Musk, also reported negative free cash flow on Wednesday of $1.1bn in the second quarter due to an increase in its investment costs.
It was the company’s first negative cash balance in two years, according to its financial records.
Vaibhav Taneja, Tesla’s chief financial officer, said during a call to analysts that the company will spend up to $25bn this year, more than doubling its spending by 2025.
He added that Tesla is in a “big investment cycle” and that its spending will likely increase over the next three years.
Tesla shares were also down 4% in after-hours trading.
