Google continues to bet on AI: capital expenditures reach new highs and negative cash flow appears for the first time
[Google continues to bet on AI: capital expenditures hit new highs and negative cash flow occurred for the first time] After the market closed on July 22, Eastern Time, Google parent company Alphabet announced its second-quarter financial report. Both revenue and profit performance were better than expected. In particular, Google Cloud achieved the strongest growth in history, but it fell by more than 3% in after-hours trading. In terms of capital expenditures, which the market is particularly concerned about, Google has continued to raise its forecasts this quarter to between US$195 billion and US$205 billion. Last quarter, Google just raised its capital expenditure forecasts to US$180 billion to US$190 billion. At the same time, Google experienced negative cash flow for the first time in its history, which became one of the factors that worried the market.
After the market closed on July 22, Eastern Time, Google parent company Alphabet announced its second-quarter financial report. Both revenue and profit performance were better than expected. In particular, Google Cloud achieved the strongest growth in history. However, Google (GOOGL.US) fell by more than 3% in after-hours trading. In terms of capital expenditures, which the market is particularly concerned about, Google has continued to raise its forecasts this quarter to between US$195 billion and US$205 billion. Last quarter, Google just raised its capital expenditure forecasts to US$180 billion to US$190 billion. At the same time, Google experienced negative cash flow for the first time in its history, which became one of the factors that worried the market. The Dolphin Investment Research and Development Research Report believes that as one of the world's core major buyers of AI, Google's financial report is of concern to investors across the industry chain. Among them, Google's capital expenditure, cloud growth rate and cash flow are relatively key indicators. Overall, Google’s financial report is on track to “benefit the industry chain”. Due to strong demand, management's attitude towards AI investment remains very positive, which has defied market expectations. But on the contrary, Google's aggressive investment will be relatively unfavorable to its short-term fundamentals, especially in the weak belief stage when Gemini iteration is not going smoothly and the growth base of its main business will increase. Therefore, although Google Cloud's current revenue is impressive and orders continue to grow, free cash flow has turned negative beyond expectations. Combined with the company's capital expenditure guidance for continued growth, it indicates that cash flow pressure will continue to exist for some time in the future. Looking specifically at operating data, Alphabet's second-quarter revenue was US$119.8 billion, higher than analysts' expectations of approximately US$116.9 billion, a year-on-year increase of 24%; operating profit was US$40.8 billion, a year-on-year increase of 30%; affected by Anthropic, Driven by the growth in equity income, Alphabet's net profit surged 298% year-on-year to US$112.1 billion. In terms of specific business data, Google Cloud achieved the fastest growth rate in history, with revenue increasing 82% to US$24.8 billion, mainly driven by enterprise Google CEO Sundar Pichai said that AI has begun to fully drive the growth of the company's core business. Currently, the Gemini series models can process 22 billion Tokens per minute, and the monthly active users of the Gemini mobile application have reached 950 million. From a business performance perspective, AI is helping Google continue to expand its revenue base. However, it is capital expenditure that really affects the market. In the second quarter of this year, Alphabet’s capital expenditures totaled $44.9 billion, exceeding the forecast of $44.15 billion. Google Chief Financial Officer Anat Ashkenazi told analysts on an earnings call that the bulk of Google's capital spending is on support The technical infrastructure built, of which about 60% of the infrastructure investment is for servers and 40% for But AI investments are changing Google’s historically sound financial structure. Free cash flow for the quarter was negative $5.9 billion as spending on property and equipment exceeded cash flow from operating activities. This was the first time in Google's history that it had negative cash flow. Regarding the increase in full-year spending expectations, Ashkenazy emphasized that Google will continue to invest as long as the returns look attractive. Thomas Monteiro, a senior analyst at Investing.com, believes that Alphabet’s new capital expenditure plan is not optimistic. “The most reliable cash flow generator in the market is now spending more than revenue. As long as revenue continues to grow, investors may be able to tolerate this situation. But capital costs have become a reality again, and the room for error is shrinking every quarter.” In order to support the continued expansion of AI infrastructure, Alphabet has begun to reserve funds in advance. In June this year, Alphabet announced that it planned to raise US$80 billion through equity issuance, which is the largest equity financing in Google's history. The financial report shows that Alphabet completed a US$49.6 billion stock issuance in June and issued US$20.3 billion in senior unsecured bonds in the second quarter. Dolphin Investment Research believes that as capital expenditures continue to grow, Google's cash exposure management will still not be easy in the future, and Google cannot completely rule out new financing plans that are not planned in the future.