Google burning through cash with spiralling AI costs
7 hours ago
Reuters
Google parent Alphabet saw its business continue to grow in recent months, yet growing spending on artificial intelligence (AI) infrastructure put its leftover cash into negative territory
The company’s free cash flow, the cash it maintained after paying for operations and investments, came in at negative $5.9bn (£4.3bn) for the first time in at least a decade, according to its past financial records
Alphabet’s spending on AI is now expected to hit as much as $205bn this year, an increase from $190bn, as major tech companies race to build around a new wave of the technology
Meanwhile, Alphabet’s combined quarterly revenue hit $119.8bn, up 23% compared with the same time last year
But the company’s stock fell 4% in after hours trading
Anat Ashkanazi, Google’s chief financial officer, noted on a call with financial analysts that the company had shown negative free cash flow due to growing capital expenditures, essentially all of which was related to AI spending
She said the company spent $45bn in the second quarter, with 60% of the cost going towards servers and the remaining 40% going towards data centres
Alphabet’s capital spending was $36bn in the first quarter of this year
Ashkanazi said on the call that when it comes to AI, “the demand still outpaces that investment”
“As long as we see these attractive opportunities to invest, we will continue to invest.”
Sundar Pichai, Google’s chief executive, said that the technological shift to AI tools and capabilities still “feels like early innings in a shift across multiple areas” and that the company’s plans around generating financial returns on its spending were “disciplined”
“What I see with what you can do with frontier capabilities, there is still a lot of work left to do to translate that into experiences for our users. So that looks like extraordinary opportunities with extraordinary returns.”
Tesla, the electric vehicle company controlled by Elon Musk, also reported negative free cash flow on Wednesday of $1.1bn for the second quarter due to its own increasing investment costs
It was the company’s first negative showing of leftover cash in two years, according to its financial records
Vaibhav Taneja, Tesla’s chief financial officer, said during a call with analysts that the company will spend as much as $25bn this year, more than double its capital spending in 2025
He added that Tesla was in “a big investment cycle” and that its spending would probably increase further over the next three years
Tesla’s stock also dropped by 4% in after hours trading
Amazon shares fall as it joins Big Tech AI spending spree
Google
Alphabet
Artificial intelligence
Technology
