Google Posted a Record Quarterly Profit, and Its First Negative Cash Flow in 21 Years
Google ($GOOGL) earned a stunning $112 billion in Q2, the highest quarterly net income for any company in history.
But its stock fell 7% the day after its earnings report. Why? AI spending concerns, with Google's free cash flow turning negative for the first time in company history.
Alphabet, Google's parent, posted $112.1 billion in net income for the second quarter, a record for any company in a single quarter. But its stock fell 7% the day after the earnings report. Record profit, falling stock: why? Charlie Bilello, who writes the investing newsletter The Week in Charts, laid out the answer on July 27.
Why did a record quarter get sold
The reason is cash. Alphabet's Q2 free cash flow, operating cash minus capital spending, came in at negative $5.855 billion. That's the company's first quarterly cash deficit since its 2004 IPO. Quarterly capital expenditures hit $44.9 billion, double what they were a year earlier. Alphabet also raised its full-year capex guidance to $195-205 billion, up from $180-190 billion last quarter. The money going into AI infrastructure is growing faster than the cash coming in.
A record profit, but how much of it was actually earned
Bilello's post says 87% of that net income came from paper markups on equity stakes like SpaceX and Anthropic. The real number is a bit different.
Dividing the pretax gain ($99B) by after-tax net income ($112.1B) gets you 87-88%, but the markup itself gets taxed too. On an after-tax basis its contribution is $77.1B, about 69% of net income. The direction of the original claim holds, but the cited number mixes pretax and after-tax figures
2026-07-27, ChainCatcher, citing Alphabet's earnings release
Either way you calculate it, the conclusion doesn't change. More than two-thirds of net income didn't come from selling ads or cloud services. It came from the paper value of SpaceX and Anthropic shares Alphabet holds going up. None of that money hit a bank account.
Is that markup even still good
The problem is that the ground under this markup is shifting. SpaceX peaked near $226 a share within days of its IPO last month, then fell to around $113 by July 27, roughly a 50% drop from that peak. Early investors cashing out quick gains, launch mishaps reminding investors that execution isn't guaranteed, cooling AI sentiment, and new share supply from lock-up expirations and a $25 billion bond sale all played a part.
If SpaceX has fallen this much since Alphabet marked its stake, the next quarter's net income could show the same swing in the opposite direction.
Negative free cash flow is a warning that AI spending is growing faster than the company can afford
More than half of that shortfall isn't spending at all, it's a markup gain distorting net income, and the real risk is that the SpaceX valuation behind that markup is already cracking
Put Apple and Oracle side by side and the pattern gets sharper. Apple generated $129 billion in free cash flow over the past year and its stock is up 56%, at an all-time high. Oracle burned $24 billion over the same period and its stock is down 52%. Capex discipline is being rewarded. Capex excess is being punished.
What decides this
The question comes down to one thing. Is Alphabet's negative cash flow a temporary side effect of an early, aggressive AI buildout, or a structural shift where spending is outrunning what the business actually earns. If free cash flow turns positive again next quarter and the SpaceX and Anthropic stakes hold their value, this quarter reads as a one-off. If capex guidance rises again and SpaceX keeps falling, the $112.1 billion net income number starts looking shakier from the very quarter it was booked in. What's certain right now is that a record profit and the company's first-ever cash deficit landed in the same quarter, at the same company.
- Alphabet posted a record $112.1 billion in Q2 net income, and its stock fell 7% the next day.
- On the surface, AI capex looks like the reason, quarterly spending doubled to $44.9 billion.
- But about 69% of net income (after tax) was a paper markup on Alphabet's SpaceX and Anthropic stakes, and SpaceX itself is now down 50% from its peak.
What happened next
Awaiting gradingCheck whether Alphabet's free cash flow turns positive again in Q3, and whether SpaceX holds its current share price (around $110s).