Alphabet plans to increase AI investment significantly next year

Alphabet, Google’s parent company, is spending about $200 billion this year to expand its AI capacity.

President and chief investment officer Ruth Porat says capital spending is expected to increase significantly next year.

She says demand from businesses, governments and Google’s own services is strong, and Alphabet remains short of the computing capacity it needs.

The spending is already affecting the company’s finances: capital expenditures reached $44.9 billion in the second quarter, and free cash flow turned negative for the first time since Alphabet became a public company.

At the same time, Google Cloud revenue rose 82% and its operating profit more than tripled in that quarter.

Some investors worry that huge AI investments may not earn a return, including if cheaper Chinese models gain market share, but Porat argues that demand points to real value.

She says returns depend on offering useful services to customers and providing computing capacity efficiently, and Alphabet plans to keep investing for the long term.