Google burning through cash with spiralling AI costs

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 noted that the company spent $45bn in the second quarter, with 60% of the cost going toward 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."