The Alphabet AI spending spree that rattled markets this week produced something investors had not seen from the Google parent in at least a decade: negative free cash flow. According to Alphabet’s Q2 2025 SEC earnings release, the company posted revenues of $96.4 billion in the second quarter, up 14% year on year, yet still managed to burn through more cash than it generated. Free cash flow came in at negative $5.9 billion, the first such negative reading in at least a decade. The stock fell 4% in after-hours trading.
Where the money is going
The arithmetic is not complicated. Alphabet spent $45 billion in Q2 alone, with 60% directed at servers and 40% at data centres, according to chief financial officer Anat Ashkenazi on the earnings call. That followed $36 billion in Q1. The full-year 2025 capital expenditure guidance now stands at $85 billion, raised by $10 billion from prior guidance, according to the Motley Fool transcript of the Q2 2025 earnings call. For context, CNBC reported in February that Alphabet’s original 2025 CapEx plan was $75 billion. The company has revised that figure upward twice in less than six months.
The snippet circulating on wires cited a combined figure of $119.8 billion in quarterly revenue and 23% growth. Alphabet’s own SEC filing reports standalone Q2 2025 revenue of $96.4 billion and 14% growth. The larger figure may reflect a different aggregation period; the SEC filing is the authoritative source and the one used here.
Ashkenazi also disclosed that total operating expenses rose 20% to $26.1 billion in the quarter, partly driven by a $1.4 billion charge from a legal settlement alongside higher research and development costs. She warned that the growth rate in depreciation is expected to accelerate further in Q3 2025 as recent CapEx investments begin to be expensed. Alphabet, in her phrasing, expects to ‘remain in a tight demand-supply environment going into 2026.’ That is not the language of a company that believes the build cycle is close to peaking.
The revenue picture underneath the spending is genuinely strong. Google Services revenue grew 12% to $82.5 billion, with Search, YouTube advertising and subscriptions all contributing, per the earnings call transcript. Google Cloud continues to run short of capacity despite the record investment, which is precisely why management keeps raising the CapEx ceiling.
Chief executive Sundar Pichai described the AI transition as ‘early innings in a shift across multiple areas’ and insisted the company’s approach to financial returns was ‘disciplined.’ Ashkenazi added that ‘the demand still outpaces that investment.’ Neither of those formulations should be taken as comfort by investors who are watching free cash flow turn negative while waiting for the returns to materialise.
The Alphabet AI spending spree in the context of Big Tech
Alphabet is not alone. CNBC reported that Meta announced plans to invest between $60 billion and $65 billion in 2025 as part of its own AI push, announced around the same time as Alphabet’s original $75 billion guidance. Tesla, meanwhile, has guided for up to $25 billion in capital spending this year, with chief financial officer Vaibhav Taneja warning on Wednesday that expenditure would ‘probably increase further over the next three years.’
On Tesla’s free cash flow, there is a discrepancy worth addressing. The original wire report stated Tesla posted negative free cash flow of $1.1 billion for Q2. Tesla’s own Q2 2025 Update shows non-GAAP free cash flow of positive $146 million for the quarter, with net cash from operating activities of $2.540 billion, down 30% year on year. The wire figure likely reflects a GAAP measure or a different definitional treatment; the issuer document is the primary source. Quarter-end cash, cash equivalents and investments stood at $36.8 billion, a modest sequential decrease of $0.2 billion.
My read is that the real issue is not whether these companies are spending too much. It is whether investors have a clear timeline for when the returns appear. Russ Mould, investment director at AJ Bell, put it plainly: ‘There is still a healthy degree of scepticism about the ability of these investments to generate a commensurate level of return.’ Rachel Winter, partner at Killik & Co, noted that the share price reaction itself told a story: ‘These are huge numbers. The fact that the shares dropped when the results came out, that suggests there is a little bit of concern about those levels.’
The Alphabet 2025 Annual Report filed with the SEC subsequently showed the company plans to invest around $180 billion in capex in 2026, doubled from $90 billion in 2025. That figure sits in the future from the Q2 snapshot, but it makes the trajectory clear. The spending is not a temporary build. The question is whether Search and Cloud revenues can grow fast enough to close the gap. Ashkenazi’s own admission that depreciation acceleration will hit margins in Q3 suggests the near-term answer is: not yet. Watch the Q3 free cash flow print. That is the next real test of whether this cycle is disciplined or simply expensive.
