Alphabet burns $9 billion in cash and nearly triples its debt to pay for AI

Alphabet, the company that turned a search box into one of the most reliable cash machines in corporate history, spent more money than its businesses brought in last quarter. It poured billions into data centers and chips for artificial intelligence, stopped buying back its own shares and leaned on borrowed money to cover the gap. Investors marked the stock down by roughly a tenth in after-hours trading.

That matters well beyond the people who pick stocks. Alphabet is one of the largest holdings in the index funds and pension plans that hold most people’s savings, and for years it handed a large share of its spare cash back to those owners. Now the cash is going into concrete, servers and power contracts, and part of the bill is being paid with debt and newly issued shares.

A cash machine that now runs a deficit

Alphabet spent $51.4 billion on property and equipment in the third quarter, more than double the $24 billion of a year earlier, according to the earnings release it filed with the SEC. Its operating businesses generated $42.3 billion in cash over the same three months. The difference left free cash flow at minus $9.07 billion, deeper than the shortfall of about $2.7 billion that analysts had expected, according to CNBC. It is the second negative quarter in a row, after minus $5.9 billion in the previous quarter.

The funding has changed shape. Long-term debt reached $125.1 billion at the end of September, against $46.5 billion at the end of last year, after Alphabet raised $28.7 billion in new bonds. It has also sold $12.4 billion of new stock through an at-the-market program. Share buybacks, which totaled $11.5 billion in the same quarter a year ago, fell to zero.

Where the money is working

The spending is buying growth. Google Cloud revenue more than doubled to $30.7 billion, with sales of Google’s own TPU chips cited as a meaningful contributor, and Cloud chief Thomas Kurian described “extraordinary demand” from AI labs, financial institutions and enterprises. The Gemini app has reached one billion users, which Alphabet calls the fastest-growing product in Google’s history. Operating income rose 30% to $40.6 billion.

What the spending has not fixed

The business that pays for everything else is lagging expectations. Search revenue grew 12% to $63.35 billion, short of the $64.96 billion analysts expected, even as chief executive Sundar Pichai said AI was driving the fastest query growth in five years. “The cloud business was the only business that beat at 103% growth,” Jefferies analyst Brent Thill told CNBC. “Everything else missed.” Net income fell to $26.2 billion, or $2.12 a share, from $2.87, dragged down by an $8.7 billion paper loss on its portfolio of equity stakes, a portfolio that CNBC said includes SpaceX and Anthropic. Part of Cloud’s demand also comes from AI labs whose own finances depend on the same boom.

Not everyone is cutting back. Alphabet ended the quarter with 204,757 employees, nearly 8% more than a year earlier. Nothing in the results changes what Google charges users or advertisers in any country; the shift is in how the company pays for its build-out, and the risk now sits with its bondholders as well as its shareholders.

A bigger bill is already announced

Alphabet kept its forecast of $195 billion to $205 billion in capital spending for 2026. “We continue to expect our capex to increase significantly in 2027, and will provide further details on our Q4 call,” chief financial officer Anat Ashkenazi told analysts. The board declared a quarterly dividend of $0.22 a share, payable on December 14, and fourth-quarter results are due early next year.

For every dollar of cash its businesses produced last quarter, Alphabet spent about $1.21 on buildings and chips.

Tags: Google, AI infrastructure, Sundar Pichai, Alphabet, Google Cloud, free cash flow