Alphabet and Meta Show What a $700bn Capex Year Does to Free Cash Flow

Two of the biggest advertising businesses on earth reported strong second quarters in the past ten days, and investors punished both. Alphabet's revenue rose 24 per cent to $119.8bn, with Google Cloud up 82 per cent to $24.8bn, yet it posted negative free cash flow of $5.9bn and raised its full-year capital expenditure guidance to as much as $205bn. Meta followed on 29 July with revenue up 28 per cent to $60.8bn, but free cash flow fell 91 per cent to $784m on $31.1bn of quarterly capex, and its shares fell more than 9 per cent in premarket trading.

The numbers behind the mood

Alphabet's quarterly capex roughly doubled from a year earlier to $44.9bn, and it lifted the annual range from $180bn–$190bn. It is the first quarterly cash outflow at the company in nearly two decades, and the chief financial officer used the call to say no equity raises were planned beyond a $40bn at-the-market programme starting this quarter. That an at-the-market share programme exists at Alphabet at all is the detail worth sitting with.

Meta narrowed its 2026 capex range to $130bn–$145bn by raising the floor, missed earnings-per-share expectations at $6.18, and guided third-quarter revenue below consensus at the midpoint. Total costs rose 55 per cent. Mark Zuckerberg's defence was candid rather than reassuring: he called it "a big investment and it's a big bet" and pointed to the trajectory of his lab.

Add Amazon and Microsoft, and the four largest US hyperscalers have guided to well over $700bn of capital spending in 2026 between them, close to double what they spent in 2025. The exact total depends on how you treat leases and fiscal years, but every version of the sum is a record.

Why revenue growth is no longer enough

The two companies are not in the same position, and lumping them together hides the more interesting story. Alphabet can point to a cloud business with $514bn of contracted backlog and an operating margin near 36 per cent. That is a customer paying for the compute. The capex is, at least in part, pre-sold.

Meta has no equivalent external customer. Its infrastructure serves its own feeds, ads and model work, so the return has to show up in advertising yield or in products that do not yet exist at scale. When free cash flow drops from $8.55bn to under $1bn in a year, investors are being asked to fund a research programme out of a cash machine, and some of them would rather have the cash.

Alphabet's headline net income is also flattered: roughly $98bn of it came from an unrealised gain on its SpaceX stake. Strip that out and the operating story is good but not miraculous.

What to watch

• Financing creep. Equity programmes, off-balance-sheet data centre vehicles and vendor guarantees are the tell that capex has outrun internally generated cash. Watch how many more appear before year-end.
• Cloud pricing. If hyperscalers need to recoup faster, GPU and inference prices are the lever. Builders renting compute should not assume today's rates are a floor.
• 2027 guidance. The first company to guide capex down will move the whole sector, including the chip suppliers.

The bull case remains intact on paper: demand is real and backlogs are growing. But this quarter marked the point where "we are spending more" stopped being read as confidence and started being read as a cost.

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Sources

• Alphabet lifts capex guide to $205bn as Google Cloud jumps 82% (The Next Web)
• Meta Reports Second Quarter 2026 Results (Meta Investor Relations)
• Meta shares tumble as free cash flow nosedives (Hargreaves Lansdown)
• Alphabet, Amazon, Microsoft and Meta plan to spend more than $700 billion on capex this year (Sherwood News)