Alphabet negative cash flow alarms Wall Street despite record profit

Alphabet negative cash flow became the focus for investors after the Google parent reported what Fortune described as the most profitable quarter in corporate history. Fortune reported that Alphabet posted $112 billion in profit, but said 69% of that came from unrealized gains tied to stakes in SpaceX and Anthropic rather than its operating business.

Alphabet’s underlying results still showed strength in a key area, according to Fortune: Google Cloud rose 82%. Even so, the company’s shares fell nearly 7% after investors focused on cash leaving the business, higher expected spending and large future obligations tied to the artificial intelligence buildout.

Why did Alphabet stock fall after earnings?

Fortune reported that Alphabet became cash-flow negative for the first time in its history, meaning more cash went out than came in during the quarter. That shift stood out because Alphabet has long been viewed as one of the technology sector’s strongest cash generators.

The concern grew after management said 2027 capital expenditures would be “significantly” higher, according to Fortune. The company’s latest filing showed more than $800 billion in purchase commitments and other obligations, including about $51 billion related to support for other companies’ data centers, Fortune reported.

At least six firms reduced their price targets for Alphabet after the results, according to Fortune. Piper Sandler lowered its target to $395, UBS cut its target to $379, and D.A. Davidson set a $350 target, which Fortune described as among the more bearish calls on Wall Street. Barclays was the only firm cited by Fortune as raising its target.

The selling spread beyond Alphabet, Fortune reported, weighing on Microsoft, Amazon, Nvidia and chip stocks. Fortune also linked the broader pressure to investor unease over a new wave of Chinese open-weight AI models, while noting that Tesla fell 15% after reporting lower profit margins and high capital spending.

What does negative cash flow mean for Alphabet?

Negative cash flow means a company spent more cash than it brought in over a period. For Alphabet, Fortune reported, the milestone sharpened concerns that AI infrastructure costs are rising faster than investors had expected.

Gil Luria, head of technology research at D.A. Davidson, told Fortune that crossing into negative cash flow was a “negative milestone” and that investors were reacting to the possibility that Alphabet had reached a point many thought it might avoid. Luria still said he viewed the market reaction as excessive, even after cutting his price target.

Luria told Fortune that his issue earlier in the year was valuation rather than spending. With Alphabet shares previously near $400, he said the market had priced the company as though it would be the sole AI winner; around $320, he said, the valuation looked more like that of one winner among several.

He also told Fortune he expects Microsoft, Amazon and Alphabet to make money for years by supplying AI computing capacity. Luria pointed to Google Cloud’s growth and estimated Alphabet will earn $15 billion to $20 billion this year directly from its compute buildout.

Luria said he remains wary of the web of investments and commitments linking major AI companies and customers, citing Google, Amazon and Anthropic; Microsoft and OpenAI; and Nvidia and CoreWeave, according to Fortune. But he told Fortune he does not view the market as purely circular, pointing to what he described as a $120 billion annual spending rate on AI by consumers and businesses, up from zero two years ago.

This story draws on original reporting from Fortune.