Alphabet burnt cash for the first time since it went public more than two decades ago, even as net income quadrupled to $112.1 billion, profiting not by search or cloud but by a paper windfall on minority stakes in Anthropic and Elon Musk’s SpaceX.
The Google parent posted negative free cash flow of $5.86 billion for the three months to June, the first negative quarterly free cash flow in its history as a listed company, and lifted its capital spending guidance for the year to between $195 billion and $205 billion.
Its shares fell about 3% in after-hours trading.
Revenue rose 24% to $119.8 billion, the twelfth straight quarter of double-digit growth. Google Cloud grew at its fastest rate on record. And yet, for the first time in twenty-two years, the business did not fund itself.
The burn
Capital expenditure reached $44.9 billion in the quarter, up roughly 26% sequentially and about 100% year-on-year, outpacing operating cash flow of $39.1 billion. Spending ran at 115% of the cash the business generated. There were no buybacks in the quarter.
Chief financial officer Anat Ashkenazi then told investors the bill would rise further. Alphabet now expects 2026 capital expenditure of $195–205 billion, against the $180–190 billion range it gave in April, and executives reaffirmed that spending will increase significantly again in 2027. It is the second time this year the company has raised the target.
Ashkenazi said free cash flow would remain under pressure while the build-out continues, and framed the spending as necessary to capture the AI opportunity and generate returns later.
Alphabet is now racing Meta, Microsoft and Amazon for computing capacity; the four are together expected to spend more than $725 billion on capital investment in 2026.
Investing.com senior analyst Thomas Monteiro told Bloomberg that Alphabet’s bigger spending plan “does not sit well.”
“Add to that an increasing rates environment and a continuous supply-demand crunch in AI infrastructure, and the notion that the company would fund itself with cash flows forever might be starting to fade,” he added
Profit jumps, but there is a catch
Net income of $112.1 billion, up 298%, is the number that will travel. It is also the number that requires the most care.
The single largest driver was $97.98 billion in “other income”, stemming from a $99.03 billion gain on equity securities. This comes against just $1.29 billion in the same quarter last year.
Alphabet’s net income quadrupled to $112 billion, a huge 298% jump from a year earlier. Diluted earnings per share rose to $9.11, compared with $2.31 a year ago. That was also well above the average analyst estimate of around $2.89.
However, the massive rise in profit was helped by gains from Alphabet’s investments, including its stake in SpaceX.
Other income jumped to a net gain of around $98 billion, compared with just $2.7 billion a year earlier. The main reason was unrealised gains on the value of Alphabet’s investments. When those investment gains are removed, the picture looks much less dramatic. Operating income rose 30% to $40.8 billion, while the operating margin increased to 34% from 32%.
Anthropic and SpaceX add billions to Alphabet’s profit
Alphabet holds roughly 14% of Anthropic, whose valuation tripled from $380 billion to $965 billion during the quarter following a $65 billion funding round. Bank of America estimated that markup alone produced about $80 billion in unrealised gains.
The mechanics are stark: at a $380 billion valuation the stake is worth roughly $53 billion; at $965 billion it is worth roughly $135 billion.
SpaceX added the rest but the stock crash has started impacting the business hard. Alphabet invested about $900 million in 2015 for a position now reported at roughly 7%, worth as much as $122 billion at SpaceX’s post-IPO peak.
SpaceX shares have fallen nearly 33% since the second quarter ended, and have closed below their IPO price for the first time since the June listing. A large share of the gain Alphabet booked in June will unwind in September
Q2 was an amazing quarter, with our AI investments redefining what’s possible across every part of our business.
— Sundar Pichai (@sundarpichai) July 22, 2026
Alphabet revenue grew 24% YoY and Google Cloud accelerated to 82% growth. We saw exciting momentum across the board from Search to YouTube to the Gemini app (which… pic.twitter.com/n0ObklMtFR
What is actually growing
Company’s core isn’t growing according to market expectations, and the profits are concentrated in one place.
Google Cloud revenue rose 82% to $24.8 billion, its operating margin more than tripled to 35.6%, and the backlog swelled by more than $50 billion sequentially to $514 billion.
Cloud alone accounted for 63% of Alphabet’s operating-income growth in the quarter — the clearest sign yet that the company’s profit engine is shifting. Search revenue climbed 17% to $63.3 billion. Group operating income rose 30% to $40.8 billion, with margin widening to 34% from 32%.
Chief executive Sundar Pichai told investors the company was in the early stages of a structural shift, saying Alphabet had grown more bullish on the opportunity over the past year, and that a significant share of its compute was now being used to train Gemini 4.
He said Gemini had reached 950 million monthly active users and that model APIs were processing 22 billion tokens a minute. AI Mode has passed one billion monthly users since its global rollout last October. Nearly 90% of the Fortune 100 now use Gemini Enterprise.
How’s Google funding its AI dreams
Alphabet has taken on close to $100 billion in debt and, in June, sold shares for the first time in more than twenty years. Equity proceeds reached $49.6 billion in the quarter, with senior notes contributing a further $20.3 billion, against an announced programme of about $85 billion. Ashkenazi said no further equity sales are planned beyond what has been disclosed.
Diluted shares rose to 12,309 million from 12,198 million and it’s the first period in the comparison window without a net reduction.
Investors are watching how long the spending can continue
Investing.com senior analyst Thomas Monteiro said the larger spending plan “does not sit well,” adding that with rising rates and a persistent supply-demand crunch in AI infrastructure, the assumption that Alphabet could fund itself from cash flow indefinitely may be starting to fade.
Dec Mullarkey, managing director at SLC Management, told the Financial Times that markets want the hyperscalers to push hard on AI leadership without gutting earnings.
