Alphabet posted its first negative free cash flow in at least a decade, burning $5.9 billion more than it retained in the second quarter. This loss is viewed as a significant change to a company that has always been famous for producing billions of dollars of excess cash flow and highlights the real price paid by companies engaged in the AI infrastructure war.

The total revenue of Alphabet was $119.8 billion in the quarter, growing 23% on a year-on-year basis. However, the firm’s capital expenditure wiped out the profits.

According to the company's CFO, Anat Ashkanazi, Alphabet is going to spend between $195 and $205 billion on AI infrastructure by 2026 compared to initial projections of $190 billion.

In the second quarter itself, Alphabet made a capital expenditure of $45 billion. As Ashkanazi explained further, out of the total $45 billion, 60% was spent on servers and the rest, 40%, on data centre construction and infrastructure.

It may be noted that in the first quarter, Alphabet's capital expenditure was just $36 billion.

Google CEO Sundar Pichai defended the spending trajectory on the earnings call, framing AI investment as a long-term decision.

"The technological shift to AI tools and capabilities still feels like early innings in a shift across multiple areas," Pichai told analysts. He added that the company's plans for generating financial returns were "disciplined".

Pichai acknowledged the scale of work ahead: "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."

Ashkanazi struck a more defiant tone when addressing spending concerns. She said the company remained committed because "the demand still outpaces that investment". The message was clear: Alphabet views current spending as insufficient.

Alphabet shares dropped 4% during after-hours trading as a result of the company's quarterly earnings. As explained by Rachel Winter, a partner at the wealth management company Killik & Co, "the fact that the shares dropped about 3.5% in after-hours trading when the results came out suggests there is a little bit of concern about those levels."