Google reports record $44.9 billion capex spend in Q2 alone; raises full-year capex guidance to $195–205 billion for AI data center infrastructure; CFO warns capex will increase further in 2027

Alphabet reported negative free cash flow of $5.9 billion for the second quarter of 2026, marking the company's first cash-negative quarter since its 2004 IPO. Capital expenditures doubled year-over-year to a record $44.9 billion, exceeding the $39.1 billion that operations generated as the company continues its rapid buildout of AI data centers.

CFO Anat Ashkenazi raised full-year capex guidance to between $195 billion and $205 billion, up from the prior range of $180 billion to $190 billion. The quarter also marked the first time Google delivered TPU systems directly to customers' data centers, shifting from renting the chips exclusively through Google Cloud.

The quarterly deficit is modest relative to the company's cash flows. Alphabet's trailing 12-month free cash flow remains positive at $53.3 billion, and the shortfall reflects a deliberate investment strategy. Approximately 60 percent of the quarter's technical infrastructure investment went into servers, with the remaining 40 percent split between data center construction and networking equipment. This allocation marks a shift from the traditional hyperscaler model, in which infrastructure capex is dominated by facility construction; most of Alphabet's incremental spending now purchases compute capacity, primarily its own TPU-based systems. Property and equipment depreciation rose to $7.1 billion in the quarter from $5.0 billion a year earlier, and Ashkenazi indicated that infrastructure spending will continue pressuring margins through higher depreciation and energy costs.

Alphabet remains supply-constrained, with demand running far ahead of its own build schedule. 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 Cloud in Q3. The construction pipeline includes a $40 billion, three-campus program in Texas through 2027, the company's largest state investment, and a $1.5 billion expansion of its Jackson County, Alabama campus, announced in June.

Google began recognizing revenue from TPU system sales in Q2. Ashkenazi told 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." Inventory stood at $10 billion on June 30, roughly four times the $2.4 billion recorded at the end of 2025. A meaningful portion of the quarter's cash outflow bought hardware that now sits on the balance sheet and will be sold to customers next year; in contrast, money spent on data centers is written down over years of use.

Anthropic is anchoring a significant portion of external demand. An October 2025 agreement gives Anthropic access to up to one million TPUs and more than 1 GW of capacity coming online this year. An April securities filing from Broadcom, Google's TPU co-designer, disclosed roughly 3.5 GW of additional 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 in November. Google's current flagship, the seventh-generation Ironwood TPU, carries 192GB of HBM3E per chip and scales to 9,216-chip pods rated 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 shipping as sold hardware. No other hyperscaler's capex spend performs this many jobs, and none has a chip business generating third-party revenue at this stage.

Alphabet raised $49.6 billion in net proceeds through Class A, Class C, and mandatory convertible preferred stock offerings in June, earmarked for "capital expenditures to scale AI infrastructure and global compute." The company also 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 roughly $16 billion a year prior. A February bond program alone raised more than $30 billion across multiple currencies, including a 100-year sterling tranche.

The four largest hyperscalers plan combined 2026 capex of around $725 billion, up 77 percent from 2025. Alphabet's new guidance range now leads the group alongside Amazon's roughly $200 billion. Meta raised its 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 reflects $99.0 billion in other income, primarily from unrealized gains on equity securities, contributing $6.26 of the $9.11 in diluted earnings per share. Operating income, the cleaner measure, rose 30 percent to $40.8 billion.

Google Cloud grew 82 percent to $24.8 billion in the quarter with an operating margin of 35.6 percent. Backlog reached $514 billion, up more than $50 billion sequentially, with just over half expected to convert to revenue within 24 months. These contracts represent the collateral behind the spending; the buildout is chasing demand already booked rather than anticipated future demand. Ashkenazi said free cash flow "will remain under pressure" and confirmed capex will rise significantly again in 2027. The question for investors over the next several quarters is whether operating cash flow, which rose 41 percent year-over-year in Q2, can grow faster than spending showing no signs of moderation.