Google goes cash flow negative for the first time as AI data center buildout increases capex to a staggering $44.9 billion in a single quarter — CFO warns that capex will increase in 2027 as company banks big on TPUs

Google’s parent company Alphabet recently reported negative free cash flow of $5.9 billion for the second quarter of 2026, the company’s first cash-negative quarter since its 2004 IPO, after capital expenditures doubled year-over-year to a record $44.9 billion and exceeded the $39.1 billion its operations generated as it continues its rapid buildout of AI data centers, according to its earnings release.

CFO Anat Ashkenazi raised full-year capex guidance to between $195 billion and $205 billion, up from $180 billion to $190 billion, and disclosed that Google delivered TPU systems to customers’ data centers for the first time, a shift from renting the chips exclusively through Google Cloud.

The quarterly deficit is small compared to the sums moving through the business, and the firm’s trailing 12-month free cash flow remains positive at $53.3 billion. Back in February, Alphabet raised its guidance, but since then, spending has exceeded the cash the business generates due to its AI buildout, and Alphabet is covering the difference with borrowed money and new stock.

Servers first, buildings second

Approximately 60% of the quarter’s technical infrastructure investment went into servers, with the remaining 40% split across data centers and networking equipment, Ashkenazi told analysts on the earnings call. That ratio inverts the usual assumption that hyperscaler capex is dominated by construction. Most of Alphabet’s marginal dollar now buys compute, primarily its own TPU-based systems, rather than other forms of infrastructure. Depreciation of property and equipment rose to $7.1 billion in the quarter from $5.0 billion a year earlier, and Ashkenazi said infrastructure spending will keep pressuring the P&L through higher depreciation and energy costs.

“We’re still in a supply-constrained environment,” Ashkenazi said on the call, repeating a characterization the company has used for several consecutive quarters. Demand is running far enough ahead of Alphabet’s own build schedule that the company is renting third-party capacity as a bridge while its data centers come online, an arrangement Ashkenazi said will create modest margin pressure for its Cloud segment in Q3. The construction pipeline behind the 40% includes a $40 billion, three-campus program in Texas through 2027 in November, representing the company’s largest investment in any state, and a $1.5 billion expansion of its Jackson County, Alabama campus, announced in June.

TPU sales turn capex into inventory

Google began recognizing revenue from TPU system sales in the quarter, with Ashkenazi telling analysts the systems were “delivered to customer data centers for the first time in Q2” and that “the vast majority of the revenues from these agreements will be realized in 2027.” According to Google’s balance sheet, inventory stood at $10 billion on June 30, roughly four times the $2.4 billion recorded at the end of 2025. A meaningful slice of the quarter’s cash outflow bought hardware that sits on the balance sheet today and will be sold to customers next year, bringing cash back in. Money spent on data centers doesn’t return in the same manner; instead, it is written down over the years of use.

Anthropic is anchoring a great deal of Alphabet’s external demand, with its October 2025 agreement giving the Claude developer access to up to one million TPUs and more than 1 GW of capacity coming online this year, and an April securities filing from Broadcom, Google’s TPU co-designer, added roughly 3.5 GW of TPU capacity from 2027 while locking Broadcom into future TPU generations through 2031. Meta entered talks for multi-billion-dollar TPU deployments in its own data centers last November. The current flagship, the seventh-generation Ironwood TPU, carries 192GB of HBM3E per chip and scales to 9,216-chip pods that Google rates at 42.5 FP8 exaflops.

Every TPU Google manufactures serves four functions: training and serving Gemini, running Search and YouTube inference, renting to Cloud customers, and now shipping as sold hardware. No other hyperscaler’s capex spend works that many jobs, and none of the others has a chip business generating third-party revenue at this stage.

A $98 billion liability

Alphabet issued Class A, Class C, and mandatory convertible preferred stock in June for net proceeds of $49.6 billion, earmarked in the release for “capital expenditures to scale AI infrastructure and global compute,” and sold $20.3 billion of senior unsecured notes during the quarter. Long-term debt reached $98.2 billion on June 30, up from $46.5 billion at the end of 2025 and from roughly $16 billion a year before that, a run-up Ashkenazi acknowledged on the call. The February bond program alone raised more than $30 billion across multiple currencies, including a 100-year sterling tranche, it was reported at the time.

Together, the four largest hyperscalers plan a combined 2026 capex of around $725 billion, up 77% on 2025, and Alphabet’s new range now tops the group alongside Amazon’s roughly $200 billion. Meta raised its own 2026 forecast to $125 billion to $145 billion in April, citing component pricing and competition for land, power, and labor. Alphabet’s headline Q2 net income of $112.1 billion overstates the reality somewhat, however, as $99.0 billion of other income came primarily from unrealized gains on equity securities, contributing $6.26 of the $9.11 in diluted EPS. Operating income, the cleaner measure, rose 30% to $40.8 billion.

Google Cloud grew 82% to $24.8 billion in the quarter with an operating margin of 35.6%, and backlog reached $514 billion, up more than $50 billion sequentially, with just over half expected to convert to revenue within 24 months. Those contracts are the collateral behind the spending, with the buildout chasing demand Alphabet has already booked rather than demand it hopes to find. Ashkenazi said free cash flow “will remain under pressure” and confirmed capex will rise significantly again in 2027, so the question the next few quarters will answer isn’t whether Alphabet returns to positive territory in any given period, but whether operating cash flow, up 41% year over year in Q2, can keep growing faster than a spending that shows no sign of slowing down.