Alphabet (Google's parent company) ceased share buybacks in Q1 2026 for the first time in a decade, a stark contrast to its nearly $300 billion in repurchases over the past five years. This decision aligns with the company's aggressive strategy to fund its AI buildout, as capital expenditures surged to $35.67 billion in Q1, representing a 107.44% year-over-year increase. The company's full-year capital expenditure guidance is projected to be between $180 billion and $190 billion, an upward revision from its previous forecast of $175 billion to $185 billion.
This significant increase in AI infrastructure spending has impacted Alphabet's cash flow. Operating cash flow for Q1 2026 was $45.8 billion, but with capital expenditures of $35.7 billion, free cash flow plummeted to approximately $10.1 billion, a sharp decline from the previous year. Analysts like Dylan Patel, CEO of SemiAnalysis, have even suggested that Google's free cash flow could approach zero next year if the current spending trajectory continues.
Despite the substantial capital outlays, Alphabet is experiencing high demand for its AI services. Google Cloud revenue grew 63% year-over-year to $20 billion in Q1, and its backlog surged to about $462 billion. Over half of this backlog is expected to convert into revenue within 24 months, indicating strong customer acquisition and commitments. CEO Sundar Pichai stated that Google Cloud revenue would have been higher if the company had sufficient capacity to meet demand, underscoring the compute-constrained environment.
To finance this ambitious expansion, Alphabet undertook an $84.75 billion equity capital raise in June, following an initial $80 billion plan. This funding is specifically earmarked for expanding AI infrastructure. The company's increased spending is part of a broader trend among tech giants, with Bloomberg reporting that the largest US technology companies could collectively spend up to $725 billion this year on capital expenditures, primarily for AI data center equipment.
