Alphabet reports higher cash burn on back of heavy cloud spending

Alphabet GOOG-Q reported a higher cash burn on Wednesday than analysts expected as it spends heavily to boost capacity for its cloud business, sending its shares down more than 6 per cent in extended trading.

The company reported negative free cash flow of US$9.07-billion, compared with analysts’ estimate of a cash burn of US$36-million, according to data compiled by LSEG.

Revenue at Google Cloud more than doubled to US$30.71-billion in the third quarter ended September, compared with analysts’ average estimate of a 95.1 per cent increase to US$29.57-billion.

The third-largest cloud services provider globally, behind Amazon Web Services and Microsoft’s Azure, has continued to expand enterprise commitments, supported by multi-year cloud and AI infrastructure deals across cybersecurity, retail and financial services.

Alphabet seeking up to $25-billion in fresh debt to finance AI build-out

The results underscore Alphabet’s position as the primary beneficiary of surging enterprise AI spending, easing investor concerns that heavy capital expenditures on computing capacity might outpace near-term revenue gains.

Enterprise appetite for cloud-based AI training and inferencing has remained strong through the year, keeping data centre utilization high and pushing major cloud providers to accelerate infrastructure deployment.

Alphabet, Microsoft, Amazon, and Meta are projected to collectively spend well over US$700-billion in 2026 to expand AI data centre footprint, chips and high-performance networking capacity.

Google Cloud’s outperformance comes as hyperscalers navigate varying degrees of capacity constraints, positioning Alphabet well to capture market share among enterprises migrating AI workloads to the cloud.

While industry-wide supply bottlenecks for advanced silicon and data centre power have persisted, Alphabet’s investments in custom tensor processing units alongside third-party GPUs have helped expand its service delivery capabilities.

Alphabet’s proprietary AI initiatives also provided a tailwind and adoption of its Gemini model suite broadened across enterprise software and developer platforms in the reported quarter.

The company’s integration with Apple’s ecosystem to power cloud-based AI capabilities has continued to support Alphabet’s wider ecosystem reach.