It appears, I was wrong…
Alphabet just posted negative $9.1 billion in free cash flow as its AI spending hit a record. I gave Google too much credit on AI economics, and I was wrong.
I have said that of the big companies, Google seemed to be the one that figured out the economics of AI. That was overstated. After Alphabet’s Q3 earnings, the stock dropped hard and the headlines say it lost around $400 billion in market value. That is technically correct, but do not read too much into it.
The numbers that matter: capital spending hit a record $51.4 billion for the quarter, more than double the $24 billion from a year ago. Free cash flow came in at negative $9.1 billion. Billion, not million. In plain terms, Alphabet spent more on the AI buildout than its operations brought in. And this is the second straight quarter of negative free cash flow, so it is trending the wrong way. Alphabet expects around $200 billion in capital spending this year and says it will rise significantly in 2027.
If Google cannot make this pencil out, you have to wonder about the rest of the industry. OpenAI is not profitable. Companies like Anthropic are on the hook for hundreds of billions in compute. Even when revenue goes up, the spending goes up with it.
I get it. This technology has changed lives. It is a force multiplier, and I agree with that 100%. But the elephant in the room is that a lot of the major players are pouring money in without seeing a return. Right now it is a financial black hole.
That is why bailout talk is already floating around, and why Democrats are trying to get ahead of it. The pitch will be that we have to beat China in the AI arms race, that too many other industries now depend on this tech, and that it is too big to fail. China is spending heavily too, and by its own accounts is on the front end of a bubble bursting.
If this hits the fan, it is going to hurt either way. I would rather these companies end up with egg on their face and we adjust, than have the government pick winners and losers and make it significantly worse.
The Rippaverse: https://rippaverse.com/
#Google #AI #Economics