Google Reports Record Revenue but Negative Free Cash Flow Amidst Soaring AI Investments

Google has reported its financial results for the second quarter of 2026 (PDF), and as usual, the search giant raked in an unfathomable amount of money. Google saw total revenue of $119.8 billion, beating analyst expectations by a comfortable margin. Despite that, the company’s stock has taken a hit. Along with all that revenue, Google has announced a further increase in its AI-fueled capital expenditures (or capex). The company is actually spending so much on AI infrastructure that it has negative cash flow for the first time.

Search was the largest chunk of Google’s income, accounting for $63.3 billion. Google Cloud pulled in $24.8 billion, a significant 23.8 percent increase from the first quarter. This shows there is massive demand for Google’s AI services. Google also earned $12.9 billion from its subscriptions, platforms, and devices portfolio, as well as $11.1 billion from YouTube ads. The company managed to goose that last one by more than 12 percent since last quarter as it made YouTube ads even longer.

A significant chunk of Google’s revenue comes from investments. When you subtract those non-cash earnings, Google’s operating cash flow for Q2 2026 was about $39.1 billion. That’s not the most the company has ever seen, but it’s a healthy 40 percent increase from Q2 2025. The problem is that Google’s spending has also gone up—a lot.

Before this latest round of financial updates, Google told investors it was expecting $180 billion to $190 billion in capital expenditures for 2026. Like other AI-obsessed tech behemoths, Google is burning cash on building and running the data centers powering its AI models. These numbers were already well above the $91 billion Google spent in 2025. The company now says it’s planning to spend as much as $205 billion on infrastructure in 2026.

As a result of its increasing AI demands, Google reports it spent $44.9 billion expanding its AI footprint in the second quarter, and you don’t need an accounting degree to know which number is larger. With $39.1 billion in cash income, this spending left Google with -$5.8 billion free cash flow.

To be clear, Google is still profitable—wildly so. It’s also sitting on a war chest of more than $100 billion. But free cash flow is an important metric that goes to the overall health of a business. This is the actual money a company takes in to fund its operations without selling investments or taking out new loans. So it’s notable that Google’s free cash flow has dipped into negative territory for the first time since going public.

Google’s stock price took a hit overnight on the news, dropping about 4.5 percent. It has continued to trend downward today.

Onward and upward

Google’s leadership is signaling to investors that this state of affairs is the new normal. The company points out with much fanfare that its capex spending currently is about six times higher than the $22 billion it spent in 2022 before the AI boom. Google expects spending to be even higher next year, too.

Investors have started to question the scale of AI spending, which is expected to top $700 billion industry-wide this year. Tech firms used to be reliable stocks, reporting high profits and juicy margins, but the race to build AI data centers and train new models has changed the landscape. Google is in a better position than most, with a robust ad business and cloud services that pull in plenty of cash. It just wasn’t quite enough cash to offset its spending this time. It also designs its own AI chips, and the latest Tensor 8i and 8t are supposed to be more efficient for AI data centers.

Where things go from here is uncertain. People are clearly more sensitive to the high cost and lack of profit in AI, so Google’s stock price may be in for a minor correction. Things will probably even out for the company if it can continue to compete with other major AI players.

Google recently delayed the release of its flagship Gemini 3.5 Pro model, which it says is still in testing with a small number of partners. Reports have suggested that Google is not seeing the kind of gains it needs to remain competitive with the likes of GPT 5.6 and Claude Mythos. Google has also been hit with a wave of resignations among its top AI researchers. The next few months may be pivotal for Google’s AI efforts.