[News] Google Raises 2026 CapEx Guidance Again Above US$200B; Free Cash Flow Turns Negative for First Time

Google parent Alphabet reported its 2Q26 earnings, with investors closely watching the company’s higher capital expenditure outlook. According to Reuters, CFO Anat Ashkenazi said on the earnings call that Google now expects to spend between US$195 billion and US$205 billion in capital expenditures this year, up from its previous guidance of US$180 billion to US$190 billion announced last quarter. Ashkenazi also reaffirmed that Alphabet plans another significant increase in capital spending in 2027.

Management said about 60% of planned capital expenditures will be directed toward servers, with the remaining 40% allocated to data centers and networking equipment, Investing.com notes. The updated guidance raises questions about the returns on AI infrastructure investments.

The increased spending has also begun to weigh on cash flow. Reuters highlights that the company reported negative free cash flow for the first time in its history, with free cash flow falling to negative US$5.9 billion in the quarter. Investing.com notes that net cash from operating activities still rose 41% year over year to US$39.1 billion on a trailing 12-month basis. However, property and equipment purchases doubled to US$44.9 billion, pushing free cash flow into negative territory.

The Wall Street Journal notes that investors remain focused on whether Alphabet’s rapidly rising AI investments will generate sufficient returns. Analysts cited by the report said Google has yet to clearly explain how its increased AI spending will translate into future revenue growth, while Ashkenazi indicated that negative free cash flow is expected to continue as the company deepens its AI investments.

Google Starts Recognizing TPU Revenue

Another highlight from the earnings call was that Google began recognizing revenue from direct sales of its Tensor Processing Unit (TPU) chips for the first time in the second quarter, though the vast majority of revenue from these commercial agreements is expected to be recognized next year, Reuters notes.

Meanwhile, Reuters reports that the delayed rollout of Gemini 3.5 Pro has heightened concerns over Google’s AI competitiveness, with the company falling behind in AI coding tools as Anthropic, OpenAI, and Chinese open-source models make further gains. CEO Sundar Pichai said Google is still testing Gemini 3.5 Pro while training Gemini 4, allocating significant compute resources to stay competitive.

Strong Results Despite Capex Concerns

Despite those concerns, Reuters notes that Google delivered its strongest-ever quarter of growth in its cloud computing business. According to Investing.com, Google Cloud revenue surged 82% year over year to US$24.8 billion, the fastest growth among Alphabet’s business segments. More importantly, the segment’s operating margin expanded to 35.6% from 20.7% a year earlier, underscoring its transformation from a growth investment into a highly profitable business.

Total revenue reached US$119.8 billion, up 24% year over year and accelerating from 14% growth in the same quarter last year, Investing.com notes. Operating income climbed 30% to US$40.8 billion, while the operating margin expanded to 34.0% from 32.4% a year earlier.

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