Alphabet's Spending Spree: A Growing Risk for Investors

Alphabet's spending plan is under scrutiny as its free cash flow has taken a hit. In the second quarter of 2026, the company's AI build cost $44.9 billion in capital expenditure, surpassing the $43.4 billion it brought in from sales. This gap has raised concerns about Alphabet's ability to maintain its operating margin and free cash flow.

The company has increased its spending plan for 2026 to $195-$205 billion, citing faster delivery of capacity to meet demand. However, this move is expected to put pressure on profits through higher depreciation and data center running costs. So far, Alphabet's operating margin remains at a healthy 33%, but the risk of slipping margins is growing.

The company's Google Cloud business has been driving growth, with revenue rising 82% in the second quarter to $24.8 billion. However, the spending plan and potential decline in free cash flow pose risks for Alphabet investors.