AI Momentum Accelerated Cloud Growth and Capex

$410B to $700B: Capex Continues to go Vertical: Free Cash Flow Turned Negative. Alphabet and Google Raised Guidance Anyway.

Capex guidance was raised again, and 2027 will be higher. Alphabet's June-quarter revenue rose 24% to $119.8 billion, with Google Cloud up 82% to $24.8 billion. The forward-looking disclosures mattered more: 2026 capital spending guidance was raised for the second time this year, from $180-190 billion to $195-205 billion, and the CFO confirmed 2027 spending will increase significantly further, with the company still supply-constrained across cloud and AI compute.

Strong AI demand drove cloud acceleration. Growth came from core cloud infrastructure, AI solutions and AI infrastructure, spread across products, customers, geographies and industries rather than a few large contracts. Its AI models now process around 22 billion tokens per minute, against around 16 billion in the March quarter. Nearly 90% of Fortune 100 companies use its enterprise AI, existing customers are exceeding contracted commitments by more than 50%, and backlog reached $514 billion, up around $52 billion in the quarter alone.

Free cash flow turned negative for the first time. June-quarter capital spending was $44.9 billion, which is double that of same quarter last year. Free cash flow turned negative for the first time since the 2004 listing, and in June the company raised $84.75 billion of equity, its first equity raise since 2005. Management is spending ahead of the cash the business generates and going to public markets to do it.

The top four hyperscalers are guiding to more than $700 billion this year. On latest guidance the top four hyperscalers are heading for more than $700 billion of 2026 capital spending, against roughly $410 billion in 2025. That flows across a wide supply chain, with the largest beneficiaries including Nvidia in GPU accelerators, Broadcom in custom silicon and networking, SK Hynix in high-bandwidth memory, and Hon Hai in server assembly. For suppliers across that chain, order visibility keeps extending outward rather than shrinking, even as the equity market debates who pays for it.

Ionic View

Spending plans are being raised mid-year rather than trimmed, which is the most useful signal available on where this cycle stands. Alphabet’s guidance was lifted for the second time in six months, 2027 is guided significantly higher again, and management repeated that it remains supply-constrained across cloud and AI compute even at this rate of spending. That it turned to equity markets for the first time in two decades to fund the build-out reinforces the point rather than undermining it. For the suppliers of compute, networking, memory and power, the read-through is that order visibility keeps extending outward rather than shrinking. Capacity, not demand, remains the binding constraint into 2027.