Google Free Cash Flow Falls to -$9.07B as AI Spending Soars

Google's free cash flow sank further into negative territory in the third quarter, reaching minus $9.07 billion. In July, the company reported its first-ever negative figure as a public company, at minus $5.9 billion for the second quarter. Shares fell roughly 11% after the market close on Wednesday.

Quarterly revenue of $127.58 billion missed market expectations, while long-term debt rose to $125.1 billion. Google also disclosed future purchase commitments of roughly $1 trillion.

AI capex drives the squeeze

Chief financial officer Anat Ashkenazi said the bulk of the spending goes to AI infrastructure, and that capital expenditure is what pushed free cash flow lower. Google expects to spend between $195 billion and $205 billion this fiscal year, and executives plan to spend significantly more next year. Ashkenazi warned that investment in technical infrastructure and the build-up of TPU system inventory "will put pressure on free cash flows."

She argued the payoff will come, saying AI is driving the highest Search query growth in half a decade and that interest in AI subscription plans is sizable. Google expects an attractive return on invested capital that stays meaningfully above its cost of capital. Chief business officer Philipp Schindler noted that AI Mode has "lower monetization," and said Google plans to raise ad saturation in AI Mode and AI Overviews.

Carbon model fails to move investors

Just before the results, Google unveiled Carbon, which CEO Sundar Pichai called its strongest frontier model, with state-of-the-art cybersecurity and long-horizon capabilities. He said it ranks first on the Artificial Analysis Intelligence Index with a score of 59. Carbon is deployed internally, and externally it will go only to a subset of trusted cyber defenders before access expands. Pichai said it will make next year a "golden year" for productivity.

Neither the model nor the ROI promises reassured investors. The results arrive as worries about an AI bubble grow: investor Michael Burry has said he expects a burst to play out over the next year, and Apollo economist Torsten Slok wrote that AI has delivered zero financial payoff to corporate America outside of tech.