NEW YORK: Alphabet AI investment continued to accelerate as Google’s parent company reported strong quarterly revenue growth despite record spending on artificial intelligence infrastructure that pushed its free cash flow into negative territory.

Alphabet reported quarterly revenue of $119.8 billion, a 23% increase from the same period last year. However, the company posted negative free cash flow of $5.9 billion, marking the first such result in more than a decade as investment in AI infrastructure surged.

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AI Spending Reaches Record Levels

Chief Financial Officer Anat Ashkanazi said the negative cash flow reflected higher capital expenditures, with nearly all of the spending linked to artificial intelligence.

The company spent $45 billion during the second quarter. Around 60% of that investment went toward servers, while the remaining 40% funded new data centres.

Alphabet had already invested $36 billion in capital expenditures during the first quarter. The company now expects total AI-related spending to reach between $195 billion and $205 billion this year, up from its previous estimate of $190 billion.

Ashkanazi said demand for AI services continues to exceed the company’s current investment levels.

“As long as we see these attractive opportunities to invest, we will continue to invest,” she told analysts.

Google Sees Long-Term AI Opportunity

Chief Executive Officer Sundar Pichai said artificial intelligence remains in its early stages and offers significant long-term growth opportunities.

He said Google continues to focus on turning advanced AI capabilities into practical products and services while maintaining a disciplined approach to generating returns on its investments.

Pichai added that frontier AI technologies present extraordinary opportunities for innovation and future revenue growth.

Investors React to Higher Costs

Despite the strong financial results, Alphabet shares fell 4% in after-hours trading as investors weighed the company’s rising investment costs.

Rachel Winter, a partner at wealth management firm Killik & Co, said investors appeared concerned about the scale of Alphabet’s spending despite its strong revenue growth.

She noted that planned investment of up to $205 billion this year represents a significant commitment to AI infrastructure.

Tesla Also Reports Negative Cash Flow

Tesla also reported negative free cash flow of $1.1 billion for the second quarter as the electric vehicle maker increased spending on its own expansion plans.

Chief Financial Officer Vaibhav Taneja said Tesla expects to invest up to $25 billion this year, more than double its capital spending in 2025.

He described the company as being in a major investment cycle and said spending is likely to continue rising over the next three years.

Tesla shares also declined 4% in after-hours trading following the earnings announcement.