Alphabet’s second-quarter results show Google making huge amounts of money, but also spending so much that it reported negative free cash flow due to infrastructure spending.
Massive gains
Revenue for the second quarter of 2026 was $119.8 billion, up 24% year-on-year.
Where does the money come from?
The earnings release shows that Search & Other accounted for the majority of profits at $63.3 billion. Google Cloud is worth $24.8 billion, Google subscriptions, platforms and devices are worth $12.9 billion, and YouTube ads are worth $11.1 billion.
- Google Search and others: $63.3 billion
- Google Cloud: $24.8 billion
- Google subscriptions, platforms and devices: $12.9 billion
- YouTube ads: $11.1 billion
Total revenue: $119.8 billion
Google’s strategy of diversifying its revenue streams is clearly paying off. Google earned $2.9 billion more in the second quarter from Search & Other than in the first quarter, an increase of +4.8%.
The difference between Q1 and Q2 shows that Google is consistently earning more across all of its businesses.
Profit growth Q1 2026 – Q2 2026
- Google Cloud: +4.8 billion dollars (+23.8%)
- Google Search and others: +$2.9 billion (+4.8%)
- YouTube ads: +$1.2 billion (+12.2%)
- Google subscriptions, platforms and devices: +$0.5 billion (+4.2%)
Many in the search and publishing marketing communities are unhappy that Google’s AI search strategy sends fewer clicks to websites than traditional search. Another complaint is that Google hoards traffic within its own ecosystem of services and websites.
Is this why YouTube’s revenues were up 12.2% this quarter compared to last and Search’s revenues were up almost 5%?
Negative free cash flow of $5.85 billion
Perhaps the most surprising detail of the results is that Google generates negative free cash flow of almost six billion dollars.
Negative free cash flow doesn’t mean Alphabet lost money this quarter, it doesn’t. This means that Alphabet spent more cash than it generated after accounting for capital investments.
Free cash flow: -$5.855 billion
Alphabet’s second-quarter operating cash flow was $39.069 billion. Their capital expenditures amounted to $44.924 billion. Their free cash flow for Q2 2026 was -$5.855 billion (operating cash flow minus capital expenditures).
Google’s investor presentation explains why they are experiencing negative free cash flow in the second quarter of 2026:
The alphabet presentation explained why they spend so much:
“We innovate at scale and incredible speed.
Since the launch of Gemini 3 last November, our momentum has accelerated. We have deployed increasingly efficient generative media models; features integrated into Chrome and the Gemini app, launch of Antigravity and our first model
in our Gemini 3.5 series.Recently, at our annual I/O Developer Conference, we demonstrated new advances in models, coding, and agents. These advances reflect our deep desire to bring tangible value to people in the products they use every day.
Supporting all of this at scale for our users, while also serving businesses and developers around the world, requires massive IT investments.
In 2022, we spent approximately $31 billion on CapEx. This year, we expect this figure to be 6 times that of 2022 and double that of last year, reaching $180-190 billion. And next year we expect a significant increase compared to 2026. The overwhelming majority of this spending will be on technical infrastructure.
The second quarter earnings release indicates that Alphabet raised $49.6 billion through a stock offering, specifically stating that the proceeds would be used to “capital spending to scale AI infrastructure and global computing.»
This is interesting because it shows how extraordinary AI spending has become because Alphabet is not funding its entire operations, but has also raised tens of billions of dollars in new equity capital to help finance its massive investment in AI data centers.
Capital investment soars
THE publication of results shows that Alphabet spends $44.924 billion on “purchases of property, plant and equipment.” This is about double the amount spent in the second quarter of 2025, or $22.446 billion.
What were these goods and equipment? A BBC report Google’s financial director explained that 60% of this sum was intended for the purchase of servers and 40% for data centers.
The explanation cited:
“Anat Ashkanazi, Google’s chief financial officer, noted on a call with financial analysts that the company posted negative free cash flow due to increasing capital spending, almost all of which was related to AI spending.
She said the company spent $45 billion in the second quarter, 60% of which was on servers and the remaining 40% was on data centers.
The second-quarter release featured a chart showing that Google’s spending is increasing, with estimates that the year will end with spending six times what Google spent in 2022, the start of the generative AI boom.
Takeaways
- Alphabet reported strong revenue growth across its businesses.
- Search remains Alphabet’s largest revenue source, while Google Cloud is its fastest-growing business.
- Revenue increased across all major business segments from the first to second quarters, showing strong momentum across a diverse range of services and products.
- Alphabet generated huge profits while simultaneously reporting negative free cash flow of $5.85 billion.
- The negative free cash flow is due to skyrocketing spending on AI infrastructure.
- Investment in AI infrastructure has become so significant that Alphabet has supplemented its operating cash flow with a large equity raise to help finance it.
- Capital spending is accelerating at an extraordinary pace, and is expected to reach six times 2022 levels by the end of 2026.
- This spending primarily funds servers and data centers that support Google’s long-term AI strategy.
Featured image by Shutterstock/Shutterstock AI
