Alphabet, the parent company of Google, reported a growing business but negative free cash flow for the first time in at least a decade, as spending on artificial-intelligence infrastructure outran its earnings. Free cash flow — the cash left after paying for operations and investments — came in at negative $5.9bn (£4.3bn).

The company now expects AI-related spending to reach as much as $205bn this year, up from an earlier estimate of $190bn, as major technology firms race to build out the new wave of the technology. Chief financial officer Anat Ashkanazi told analysts the negative free cash flow was due to capital expenditure "essentially all" of which related to AI. The company spent $45bn in the second quarter, with 60% on servers and 40% on data centres.

Revenue still rose 23% to $119.8bn for the combined quarter, a sign the core business remains robust. Ashkanazi said demand for AI "still outpaces that investment," adding, "As long as we see these attractive opportunities to invest, we will continue to invest." Chief executive Sundar Pichai called the shift "early innings" and said plans to convert spending into returns were "disciplined."

Alphabet is not alone. Tesla also reported negative free cash flow of $1.1bn for the second quarter — its first in two years — as it lifted capital spending toward $25bn. Tesla CFO Vaibhav Taneja described "a big investment cycle" that could grow over the next three years. The shared story: rich companies spending faster than they earn in pursuit of an AI payoff whose timing remains uncertain.

Investors have so far tolerated the burn, betting the infrastructure wins market share for years to come. But the first negative free cash flow in a generation signals a real cost to the AI build-out — one that will weigh on balance sheets long before the returns arrive.

The figures underscore how capital-intensive the AI race has become. Alphabet's scale means it can absorb the outflow, but the signal to competitors is clear: keeping pace now requires sums that only a handful of firms can sustain. The bet rests on the assumption that AI products will eventually generate returns proportionate to the outlay. Until they do, negative free cash flow will remain the defining financial footnote of the generative-AI boom.## The bigger picture

The figures underline how capital-intensive the AI race has become. Alphabet's scale lets it absorb the outflow, but the message to rivals is clear: keeping pace now requires sums only a few firms can sustain. The wager rests on the assumption that AI products will eventually pay back the investment. Until they do, negative free cash flow will remain the defining financial footnote of the generative-AI era, watched closely by analysts and shareholders alike.

Investors have so far tolerated the burn; the first negative free cash flow in a generation is the cost they are now pricing.