AI spending pushes Alphabet and Tesla into negative cash flow

Alphabet and Tesla have both slipped into negative free cash flow. The crunch comes as massive capital expenditures on artificial intelligence outpace operating profits, signalling a costly new phase for global markets.

Alphabet recorded negative free cash flow of $5.9bn, its first such showing in at least a decade. This occurred despite quarterly revenue climbing 23% year-on-year to $119.8bn. The company's stock dropped 4% in after-hours trading as investors digested the numbers.

The search giant is now projected to spend as much as $205bn on AI this year, up from a previous estimate of $190bn. Chief financial officer Anat Ashkanazi told analysts that a $45bn second-quarter outlay drove the negative cash flow. She noted 60% of that cost went to servers and 40% to data centres.

"The demand still outpaces that investment," Ashkanazi said. "As long as we see these attractive opportunities to invest, we will continue to invest."

Chief executive Sundar Pichai framed the spending as a necessary, early-stage pivot. "It feels like early innings in a shift across multiple areas," he said, claiming the company's plans for financial returns 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," Pichai said. "So that looks like extraordinary opportunities with extraordinary returns."

The liquidity drain is not confined to Silicon Valley. Tesla reported a negative free cash flow of $1.1bn, its first in two years, driven by its own rising investment costs.

The electric vehicle maker plans to spend as much as $25bn this year, more than double its capital spending in 2025. Chief financial officer Vaibhav Taneja noted the company is in "a big investment cycle" that will probably increase further over the next three years. Tesla shares also fell 4% after hours.

For investors, the simultaneous cash crunch at two of the world's largest companies underscores a fundamental shift in how the AI boom is financed. The transition is no longer just a narrative of surging top-line revenue. It is a severe test of corporate balance sheets, forcing markets to weigh extraordinary long-term technological promises against immediate liquidity drains.