Google halts buybacks as its AI build-out shifts to borrowed money
Alphabet invested $51.4bn in the third quarter, posted free cash flow of minus $9.1bn and raised $41bn through bonds and new shares.
Alphabet bought back no shares in the third quarter of 2026, against $11.5bn a year earlier, and instead raised a net $28.7bn in bonds and $12.4bn in new equity. Free cash flow was minus $9.1bn; the shares fell by about 10 per cent after hours.
What happened
Until now the big technology groups paid for the AI build-out from operating cash and returned surpluses to shareholders through buybacks. At Alphabet that has reversed. Quarterly capital spending rose within a year from $24.0bn to $51.4bn, while operating cash flow fell by 13 per cent to $42.3bn. Long-term debt climbed from $46.5bn at the end of 2025 to $125.1bn. An at-the-market programme allows a further $27.6bn of shares to be issued. Guidance for 2026 stays at $195bn-205bn; for 2027 Anat Ashkenazi, the finance chief, expects a significant increase. Demand is real: Google Cloud revenue doubled to $30.7bn and the backlog stands at $561bn, about 55 per cent of which is expected to turn into revenue within 24 months. The problem is pace. Cash is leaving faster than it arrives. Microsoft also reported free cash flow down 27 per cent, to $18.6bn.
What follows
Assessment: the AI build-out now depends more heavily on capital markets. If rates keep rising, every new bond becomes dearer, and the yield on ten-year Treasuries is back above 5 per cent. For shareholders the arithmetic changes: instead of buybacks that raise each share's claim, new shares dilute it. Suppliers are the near-term winners. Alphabet reports purchase commitments of $924bn, which underpins orders for chips, power and construction for years. If demand for cloud computing falls short of plans, the debt remains. For European companies the immediate effect is more computing capacity on offer; whether its price falls or rises depends on how quickly providers pass on their financing costs.
What changes in practice
- Shareholders
- There were no buybacks in the third quarter, but $12.4bn of new shares. Profits are spread across more shares.
- Bond markets
- Alphabet has almost tripled its long-term debt since end-2025. More tech issuance adds to corporate-bond supply.
- Suppliers
- Purchase commitments of $924bn secure orders for chips, grids and data centres for years.
- Cloud customers
- A $561bn backlog shows how much capacity is already committed; new customers compete for what is left.
What to watch
- Spreads on new bonds from Alphabet and Microsoft
- Use of the remaining $27.6bn share-issuance programme
- Capital-spending plan for 2027 at the next quarterly report
Sources
- Alphabet: Announces Third Quarter 2026 Results (Pressemitteilung, PDF)
- Investing.com: Earnings call transcript Alphabet Q3 2026
- Huggingnews: Alphabet Free Cash Flow Sinks to Negative $9.1B on $51.4B Capex
- The Motley Fool: Microsoft and Alphabet Just Reported Earnings (28.10.2026)