Alphabet Inc. shares plunged on Thursday after the company raised its capital spending forecast to as much as $205 billion for the year, triggering investor concerns over the rising costs of the artificial intelligence race. According to Bloomberg, the Google parent company increased its projected capital expenditures to a range of $195 billion to $205 billion, up from a previous forecast of $190 billion. Shares fell more than 6%, with some reports indicating a drop of 7.1%.
Record Cash Burn and AI Infrastructure
The spending surge has led to Alphabet’s first record cash burn, with the company reporting a $5.9 billion deficit in the second quarter. This financial strain comes as the company prioritizes AI infrastructure; capex reached $44.9 billion during the second quarter, according to CNBC. Projections indicate Alphabet may spend an additional $15 billion in 2026, with further increases predicted for the following year.
The impact of these outlays is being felt across the broader “Big Tech” sector. Alphabet’s results contributed to a 3.5% decline in shares for Meta and Amazon on Thursday. Analysts expect both Alphabet and Amazon to burn cash in 2026. Meanwhile, Meta’s cash flow is projected to shrink 95.7% to $1.85 billion, and Microsoft’s cash is expected to reach $25.39 billion for its current fiscal year ending next June, which is less than half of the $58.74 billion estimated for the previous year, according to Reuters.
Google Cloud Growth and Market Strategy
Despite the cash burn, Alphabet reported better-than-expected second-quarter revenue, driven by 82% year-on-year growth in its cloud business. Thomas Kurian, Google’s cloud chief, told CNBC that existing customers are spending roughly 50% more than their initial commitments. Kurian cited the strength of the product portfolio and go-to-market execution as primary drivers for this top-line and operating income growth.
The demand for cloud services is so high that Alphabet plans to rent data-center capacity from third-party providers to bridge the gap until sufficient internal capacity is available. While Kurian acknowledged this move will hurt margins in the short term, he argued it allows the company to capture demand and bring in customers who tend to spend more on other services over time. This strategy has subsequently driven up shares of neocloud providers such as Nebius and CoreWeave.
The Broader AI Spending Crisis
The financial pressure on Alphabet is part of a wider trend among the five largest cloud builders: Microsoft, Amazon, Alphabet, Meta, and Oracle. According to an analysis by Epoch AI published June 16, 2026, these companies are spending on AI infrastructure 70% faster per year than their cash earnings are growing. While aggregate operating cash flow is growing at roughly 23% annually, the two curves are expected to cross around the third quarter of 2026, meaning the group will collectively spend more than they earn from operations on capital expenditures.
Current spending targets for other major players include:
- Microsoft: Tracking toward $190 billion.
- Meta: Guidance raised to between $125 billion and $145 billion due to data-center construction and memory-chip costs.
- Combined Hyperscalers: Evercore and Bank of America project 2027 combined capital expenditure will exceed $1 trillion.
Industry analysts warn that as compute becomes more available and models become cheaper, cloud capacity may become interchangeable, potentially forcing providers to accept lower returns despite higher spending. Additionally, a May 2026 Goldman Sachs analysis identified the useful life of AI chips—currently depreciated over four to six years—as the most critical variable affecting cumulative capital requirements through 2031.
