Alphabet’s second quarter earnings results show that Google is earning huge amounts of money but also spending so much that it reported negative free cash flow due to infrastructure spending.
Great salaries
Q2 2026 revenue is $119.8 billion, up 24% year over year.
Where Money Comes From
The earnings release shows that Search & Other accounts for most of the revenue, $63.3 billion. Google Cloud accounted for $24.8 billion, Google subscriptions, platforms and devices accounted for $12.9 billion, and YouTube ads brought in $11.1 billion.
- Google search and more: $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 their revenue streams is clearly paying off. Google earned $2.9 billion in the second quarter from Search & More than it did in the first quarter, up +4.8%.
The difference between the first quarter and the second quarter shows that Google is always earning more in all its businesses.
Profit Growth Q1 2026 – Q2 2026
- Google Cloud: +$4.8B (+23.8%)
- Google Search and more: +$2.9B (+4.8%)
- YouTube Ads: +$1.2B (+12.2%)
- Google subscriptions, platforms and devices: +$0.5B (+4.2%)
Many in the marketing and publishing communities are unhappy because Google’s AI search strategy is sending fewer clicks to websites than traditional search. Another complaint is that Google is throttling traffic within its ecosystem of services and websites.
Is that the reason why YouTube’s revenue increased by 12.2% this past quarter and Search profits increased by almost 5%?
$5.85 Billion Dollars Negative Free Cash Flow
Perhaps the most surprising detail from the earnings results is that Google is using nearly six billion dollars in free cash flow.
Negative free cash flow doesn’t mean Alphabet lost money this quarter, it didn’t. It means that Alphabet spent more money than it generated after accounting for investments.
Free cash flow: $5.855 billion
Alphabet’s second quarter earnings were $39.069 billion. Their capital expenditure is equal to 44.924 billion dollars. Their free cash flow for Q2 2026 was $5.855 billion (operating cash flow minus capital expenditures).
Google’s investor presentation explained why they are using negative free cash flow for the second quarter of 2026:
The alphabetical presentation explained why they spend so much money:
“We are innovating at an incredible rate.
Since launching Gemini 3 last November, our momentum has accelerated. We have introduced powerful production media models; features ported to Chrome across the Gemini app, launched Antigravity and our first model
in our Gemini 3.5 series.Recently at our annual I/O developer conference, we showcased new developments across models, codes, and agents. This progress reflects our deep focus on bringing tangible value to people in the products they use every day.
Supporting all of this at scale for our users, while helping businesses and developers around the world, requires a huge computing investment.
In 2022, we spent about $31 billion in CapEx. This year, we expect that number to be 6 times larger by 2022 and double last year at $180-190 billion. And next year, we expect it to increase significantly compared to 2026. Most of this use will be in technology infrastructure.”
The Q2 earnings release states that Alphabet raised $49.6 billion through an equity offering, specifically stating that the proceeds will be used to “huge cost of scaling AI infrastructure and global computing.“
That’s interesting because it shows how dramatic AI-related spending has been because Alphabet isn’t funding it all from operations, it’s also raised tens of billions of dollars in new equity to help finance their massive investment in AI data centers.
Capital Investments Rise Higher
The earnings release shows that Alphabet is spending $44.924 billion on “Property and equipment purchases.” That’s almost double the amount spent in the second quarter of 2025, $22.446 billion.
What were those structures and tools? A BBC report quoted Google’s Chief Financial Officer as explaining that 60% of that was for buying servers and 40% for data centers.
Excerpt:
“Anat Ashkanazi, chief financial officer at Google, noted in a call with financial analysts that the company showed negative free cash flow due to increased capital expenditures, which were essentially all related to the use of AI.
He said the company spent $45bn in the second quarter, with 60% of the spend going to servers and the remaining 40% to data centres.”
The Q2 release showed a graph showing that Google’s spending is on the rise, with estimates that the year will end with spending six times what Google spent in 2022, at the start of the AI boom.
The taker
- Alphabet reported strong revenue growth across its businesses.
- Search remains Alphabet’s biggest source of revenue, while Google Cloud is its fastest-growing business.
- Revenues rose across all major business segments from Q1 to Q2, reflecting strong momentum across different types of services and products.
- Alphabet generated a huge profit while at the same time reporting a negative cash flow of $5.85 billion dollars.
- Negative free cash flow is caused by spending on AI infrastructure.
- The investment in AI infrastructure has been so large that Alphabet has increased working capital through a large equity raise to help pay for it.
- Capital expenditures are growing at an unprecedented pace, with spending expected to reach six-fold levels by 2022 by the end of 2026.
- The use is primarily to fund servers and data centers that support Google’s long-term AI strategy.
Featured image by Shutterstock/Shutterstock AI
