Google's Cash Machine Breakdown: Spending Outpaces Profit

Alphabet's (GOOGL) business model has undergone significant changes in recent quarters. The company's advertising profit used to convert into cash almost mechanically, but this is no longer the case. In the June quarter, spending outran what the operations produced, and debt and equity were raised to keep the buildout funded.

Capital spending now accounts for 29.7% of revenue, a significant increase from the company's 12.2% history. The majority of this spending goes towards technical infrastructure, with servers making up about 60% of it. Alphabet has raised its full-year 2026 capital expenditure guidance to $195 billion to $205 billion due to increasing capacity to meet demand.

The profit generated by Alphabet's operations now runs below net income, whereas in the past, it was above it. Net income was lifted primarily by unrealized gains on an equity securities portfolio, which are not cash. Free cash flow came out at negative $5.9 billion, a significant drop from the trailing twelve months' $53.3 billion.

Debt has become a major component of Alphabet's capital structure, standing at 12.2% of total assets against a 5.2% company history. The company's debt has grown to about $100 billion from about $16 billion a year earlier, with an equity raise alongside it.