Alphabet Posts Record Profit, Becomes Cash Flow Negative

Alphabet achieved a historic financial milestone on Wednesday, reporting its most profitable quarter with $112 billion in profit. However, 69% of this profit stemmed from unrealized gains on investments in SpaceX and Anthropic, rather than its core operations. Despite a strong 82% surge in its cloud computing business, investors reacted negatively, causing Alphabet's shares to drop nearly 7%, marking its worst day since tariffs were imposed. This decline was primarily driven by the company becoming cash flow negative for the first time in its history, indicating that more cash left the company than entered it during the last quarter.

Adding to investor concerns, Alphabet's management projected significantly higher capital expenditures for 2027. The company's latest filing revealed over $800 billion in purchase commitments and other obligations, including approximately $51 billion allocated to supporting data centers for other companies. In response to these developments, at least six firms, including Piper Sandler, UBS, and D.A. Davidson, reduced their price targets for Alphabet's stock. Only Barclays opted to raise its target.

The financial anxieties surrounding Alphabet had a ripple effect across the technology sector. Shares of Microsoft, Amazon, and Nvidia experienced declines, exacerbated by concerns over new powerful Chinese open-weight AI models. Tesla also faced a significant downturn, with its stock falling 15% after reporting a decline in profit margins and high capital expenditures. Gil Luria, head of technology research at D.A. Davidson, commented to Fortune that crossing into negative cash flow was a "negative milestone" that surprised the market, suggesting a prior belief that such a point might not be reached.