Google made nearly $120 billion in earnings last quarter. Somehow, that still was not enough to cover what the company is pouring into AI.
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Alphabet, Google’s parent company, announced Wednesday, July 22, that it recorded negative free cash flow of $5.9 billion for the second quarter of 2026, marking the first time that figure has fallen below zero since the company went public. Google generated $39.1 billion in operating cash flow, but spent $44.9 billion on capital projects, with most of the money going toward the servers, data centers, and networking equipment needed to support its AI products.
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To be clear, Google is still making plenty of money. In the Q2 2026 earnings report, the company disclosed $119.8 billion in quarterly revenue, a 24 percent increase from the same period last year. Its operating income reached $40.8 billion, while its net income climbed to a record $112.1 billion.
There is an important catch to that record profit, however. Much of it came from Alphabet’s investments rather than its main businesses. The company reported approximately $98 billion in other, primarily from unrealized gains in its portfolio of equity investments. Those gains reflect assets that increased in value but were not necessarily sold for cash.
Free cash flow offers a look at the money Google actually had left after covering its operating expenses and investments in assets such as equipment and facilities. The company typically produces billions of dollars in free cash flow each quarter. This time, though, its rapidly growing infrastructure costs consumed more cash than its businesses generated.
And Google does not plan to slow down.
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Also on July 22, the company raised its expected capital spending for 2026 to between $195 billion and $205 billion. Google had previously told investors during its first-quarter earnings report on April 29 that it expected to spend between $180 billion and $190 billion this year. The updated forecast would be more than twice the approximately $91 billion it spent in 2025.
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The bill is expected to keep growing next year. During Alphabet’s call on Wednesday, Chief Financial Officer Anat Ashkenazi told investors that capital expenditures would increase “significantly” again in 2027.
“We expect that free cash flow will remain under pressure driven by our investments in technical infrastructure, which enable us to capitalize on the AI opportunity and continue to drive attractive returns,” Ashkenazi said.
So, where is all that money going?
According to Ashkenazi, approximately 60 percent of Google’s technical infrastructure spending during the quarter went toward servers. The remaining 40 percent went toward data centers and networking equipment.
Google also said it needs that additional capacity to meet demand from outside cloud customers and support its own products, including Search, Gemini, and Google Workspace. There are already signs that some of the spending is paying off: Google reported that Cloud revenue reached $24.8 billion during the quarter, an 82 percent increase from the previous year, while its operating income more than tripled to $8.8 billion.
Google’s other major businesses continued to grow, too. The company also reported that Search advertising generated $63.3 billion, YouTube advertising brought in $11.1 billion, and revenue from subscriptions, platforms, and devices reached $12.9 billion. Google said demand for AI subscriptions helped boost its Google One business.
They are hardly the only company writing enormous checks for AI. Google, Amazon, Microsoft, and Meta are collectively expected to invest more than $700 billion this year, largely in data centers, chips, and electricity required to build and run their AI systems.
Investors, however, did not appear reassured by Google’s growth. Alphabet shares fell nearly 7 percent on Thursday, July 23, the day after the company raised its spending forecast and warned that free cash flow would remain under pressure.
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Google still has a substantial financial cushion, but with the company already warning that infrastructure spending will climb significantly again in 2027, this may not be the last quarter in which Google’s enormous AI bill outpaces the cash coming in.
