Alphabet’s Cash Crunch Pulls In Berkshire and New Preferred Investors

Alphabet’s free cash flow fell to negative $5.9 billion in the second quarter, the first shortfall of its kind in the company’s history. Capital spending on AI infrastructure hit $44.9 billion in three months, more than the business pulled in from its own operations. Covering that gap meant going outside the company for cash, something Alphabet had almost never done before.

Most of Wednesday’s earnings coverage stopped at the negative number. It missed who wrote the checks that covered it. Warren Buffett’s Berkshire Hathaway put in $10 billion. A new class of preferred stock, paying a fixed 6.25% dividend, now sits ahead of ordinary shareholders in line for cash.

Free Cash Flow Goes Negative for the First Time

Alphabet’s headline numbers were strong. Revenue climbed 24% year over year to $119.8 billion for the quarter ended June 30, and operating income rose 30% to $40.8 billion. Google Cloud revenue jumped 82% to $24.8 billion, and Search grew 17% to $63.3 billion.

That strength did not stop the stock from falling. Operating cash flow came in at $39.1 billion for the quarter, while capital expenditures roughly doubled to $44.9 billion. Subtract one from the other and free cash flow lands at negative $5.9 billion, the first quarterly shortfall in Alphabet’s history as a public company.

The cash squeeze arrived even as Google Cloud’s backlog of contracted, unfulfilled work swelled to $514 billion. Alphabet CEO Sundar Pichai pointed to demand across the business. “Our AI investments are redefining what’s possible across every part of our business,” he said in the earnings statement, citing nearly 90% of the Fortune 100 now using the company’s Gemini Enterprise product.

Alphabet Taps Wall Street for $84.75 Billion

Alphabet priced an upsized $84.75 billion equity capital raise on June 2, up from a previously announced $80 billion. For most of the last decade, Alphabet covered its entire capital spending program from operating cash flow and rarely tapped outside investors for infrastructure money. That changed this year.

The raise came in several pieces, priced and closed within days of each other in early June.

Add the February bond sale to the June equity raise and Alphabet pulled in more than $100 billion from outside investors in a single year.

Buffett’s Berkshire Buys a $10 Billion Stake

Buried inside the equity raise was a $10 billion private placement to Berkshire, split evenly between Class A shares priced at $351.81 and Class C shares priced at $348.20. It closed the same day as the public stock offering, on June 4.

Berkshire’s stake is common stock, not preferred, so it carries no special dividend or ranking over other shareholders. But the size of the check matters on its own. A company famous for avoiding richly valued technology stocks chose this moment, mid capex explosion and mid cash flow crunch, to put new money into Alphabet rather than wait it out.

Strings Attached to the New Preferred Stock

The preferred shares, trading under the tickers GOOGM and GOOGN, carry a 6.25% dividend on a $1,000 liquidation preference, payable quarterly starting August 15. That dividend is far higher than the roughly 0.24% yield on Alphabet’s common stock.

The structure comes with conditions that did not exist at Alphabet three months ago.

• Priority in line – preferred shares rank ahead of common stock in any liquidation
• Dividend lockup – Alphabet cannot pay common dividends or buy back Class A or Class C shares unless preferred dividends are current
• Fixed payout – the 6.25% rate holds until the shares convert on May 15, 2029
• New tickers – the shares trade separately from common stock as GOOGM and GOOGN

Yield-enhanced common stock.

Michael Youngworth, a strategist at BofA Securities, used that phrase for mandatory convertibles like Alphabet’s. Investors get a higher dividend, he said, precisely because they gave up a bond’s safety net.

Alphabet Joins Big Tech’s Borrowing Boom

Alphabet was not the first hyperscaler to discover its cash flow could not keep pace with AI spending. Bloomberg reported in February that Alphabet had already sold $20 billion of bonds in a seven-part offering to help fund the same buildout, months before the equity raise followed.

Alphabet’s own capex guidance has climbed three times in five months: from $175 billion to $185 billion in February, to $180 billion to $190 billion last quarter, to $195 billion to $205 billion now. Roughly 60% of that technical infrastructure spending goes to servers, mostly Google’s own TPU chips and Nvidia GPUs, with the rest split between data centers and networking gear, chief financial officer Anat Ashkenazi told analysts on the earnings call.

The buildout ripples through the chip supply chain well beyond Alphabet’s own hardware orders, with chip stocks sliding after Samsung’s own record quarter earlier this year on similar capex signals.

• $205 billion – the top end of Alphabet’s newest 2026 capex ceiling, raised twice since February
• $725 billion – combined 2026 capital spending planned by Alphabet, Microsoft, Amazon and Meta, up 77% from 2025
• $91.4 billion – Alphabet’s actual capex for all of 2025, less than half its new 2026 ceiling

Does Alphabet’s AI Spending Bet Pay Off?

Not yet, by the measure that matters most to income investors, though Wall Street has not turned bearish. Google Cloud’s operating margin more than tripled to 35.6% and its backlog keeps growing, but the payoff from Alphabet’s buildout looks like years away, not quarters, and management is already flagging near-term pressure.

Ashkenazi told a Morgan Stanley analyst on the call that demand keeps outrunning supply. “As long as we see these attractive opportunity to invest, we will continue to invest,” she said. Alphabet also said it will rent third-party compute capacity as a bridge while its own data centers get built, a move executives warned will squeeze Cloud’s operating margin in the third quarter.

Skepticism about the buildout is not new, and it is not limited to Alphabet. Chip stocks felt a version of that same doubt earlier this year, when Kimi K3 revived DeepSeek-style fears that cheaper AI models could undercut the need for all this compute. Alphabet’s executives argue the opposite is happening on their own books: Pichai confirmed training has already begun on Gemini 4, with plans to speed up the pace of model releases, not slow it down.

Alphabet’s preferred shares convert automatically into common stock on May 15, 2029. Until then, the company owes their holders a fixed 6.25% dividend every quarter, on top of whatever it spends chasing the compute capacity it says it still does not have enough of.

Frequently Asked Questions

What is free cash flow, and why did Alphabet’s turn negative?

Alphabet defines free cash flow as net cash from operations minus capital expenditures, the standard yardstick for how much cash is left after a company funds its own growth. A negative reading does not necessarily mean a company is losing money; Alphabet’s operating income still rose sharply the same quarter. The shortfall reflects investment outpacing incoming cash, not weaker underlying profitability.

What are mandatory convertible preferred shares?

They are a hybrid security that pays a fixed dividend like a bond but automatically turns into common stock on a set date, in Alphabet’s case May 15, 2029. About one-fifth of Alphabet’s total 2026 equity raise took this form, sold under the tickers GOOGM and GOOGN at a 6.25% annual rate.

How much new capital has Alphabet raised in 2026 so far?

Between the $84.75 billion equity raise in June and the $20 billion bond offering in February, Alphabet brought in more than $100 billion from outside investors in the first half of 2026 alone, on top of whatever its own operations generated.

When do Alphabet’s preferred shares convert to common stock?

Conversion happens automatically on May 15, 2029. The ratio floats with Alphabet’s stock price: holders get downside protection down to roughly $360 a share and full upside participation only above roughly $440, with a fixed payout in between.

Is Wall Street still bullish on Alphabet stock after the sell-off?

The most recent analyst rating tracked on the stock remained a Buy, with a price target around $405, even after the capex guidance sent shares lower. Coverage generally credits Google Cloud’s growth and margin expansion while flagging capital spending as the main offsetting risk.

Disclaimer: This article is for informational purposes only and is not investment advice. Alphabet’s common and preferred securities carry market risk, and figures here are accurate as of publication on July 24, 2026.