Alphabet President Ruth Porat on how Google is funding AI to win long term, and the biggest risks ahead

Alphabet is committed to investing approximately $200 billion this year to enhance its AI capabilities. Ruth Porat, the company's president and chief investment officer, reaffirmed that next year's expenditures will be even greater.

According to Porat, capital expenditures (capex) are anticipated to "increase significantly" in the upcoming year, as she spoke at Fortune's Most Powerful Women Summit in Santa Barbara, California. She emphasized that the company continues to experience a "capacity constrained" environment due to rising demand for computational resources.

"The demand for compute, driven by the value our partners recognize across the enterprise and governmental sectors, indicates that we are currently in a crucial buildout phase," Porat explained during her conversation with Fortune Editor-in-Chief Alyson Shontell. When asked about the industry's long-term funding timeline for AI, Porat firmly stated, "We do see this as an opportunity that extends for quite some time."

Porat, ranked No. 11 on Fortune's 2026 Most Powerful Women list, is guiding one of the most substantial corporate spending initiatives in history. Before assuming her current position in 2023, she served nearly ten years as Alphabet's finance chief, prior to which she was the CFO of Morgan Stanley. Porat oversees Alphabet's investment divisions, including GV and CapitalG, along with various "Other Bets" ventures and real estate investments.

In July, Alphabet raised its 2026 capex projections to as high as $205 billion, which resulted in a more than 6% drop in the stock price the following day, reflecting Wall Street's pressure for evidence that this substantial spending will benefit investors. The ongoing investment in AI is already influencing Alphabet's financial landscape. Capital expenditures reached $44.9 billion in the second quarter, with "the vast majority of this spent on technical infrastructure to support our investments in AI," as noted by Alphabet CFO Anat Ashkenazi during the company's Q2 earnings call. This led to a negative free cash flow of $5.9 billion, marking the first time in over two decades as a public company that Alphabet's quarterly cash flow has dipped below zero. Meanwhile, Google Cloud's revenue increased by 82%, reaching $24.8 billion, while its operating profit soared to $8.8 billion, more than tripling.

In response to Porat's remarks, Shontell highlighted a recent report by Jefferies' global head of equity strategy, Chris Wood, who suggested that the AI surge could culminate in significant capital destruction in the U.S. due to the increased competition from lower-cost open-source Chinese models. Porat refuted this claim.

"It is illogical to suggest that we are in a capacity-constrained environment due to the robust demand for insights and enhancements in both business and government while simultaneously claiming that returns cannot be generated," she stated.

To achieve attractive returns, Porat emphasized that companies must concentrate on two critical areas: "Firstly, understanding the value we bring to partners to ensure attractive revenue growth, and secondly, delivering that compute capacity as efficiently as possible."

When asked to define success for Alphabet, Porat emphasized responsible deployment rather than mere rankings.

"The historical truth is that anything not built for long-term success will not endure," she declared. She pointed out that Alphabet's capex investments are the result of strategies initiated years earlier, particularly the shift from "mobile first" to "AI first" in 2016.

"It is essential to invest for sustainable growth," she asserted. "Waiting until you need it is simply too late."

Porat has consistently presented a positive outlook on the potential returns from AI investments. During an event with the Economic Club of New York in June, she referred to data centers as a "job creator." She elaborated on how data centers assist in moderating energy price increases by distributing fixed costs over a larger user base. Additionally, at Fortune's Global Forum in Riyadh last year, she characterized AI as "significantly more than just a chatbot," predicting potential breakthroughs such as curing cancer within our lifetime.

However, Porat also acknowledged the growing opposition to data centers, noting that approximately 71% of Americans are opposed to having one constructed in their vicinity, as confirmed by a recent Gallup poll. She argued that public sentiment frequently shifts when companies introduce energy capacity, enhance affordability, and generate local employment opportunities. She highlighted Google's initiatives in nuclear, geothermal, solar, and wind energy, as well as the establishment of a Skilled Trades Alliance in collaboration with Ford, BlackRock, and Carhartt, aimed at training electricians, welders, and other skilled workers necessary for the buildout.

"We must address the downside anxiety surrounding these developments. It is tangible and significant," Porat stated. "That underscores why I assert, if we are capable of creating AI, we must do so."

Porat's extensive finance background equips her to navigate these challenges effectively. During the 2008 financial crisis, she worked closely with then-Treasury Secretary Hank Paulson, leading the Morgan Stanley team that provided advice to the Treasury Department regarding Fannie Mae and Freddie Mac, as well as supporting the New York Federal Reserve in addressing AIG. The key lesson learned from that crisis, she noted, was the importance of "identifying your greatest source of vulnerability early and reinforcing against it, as you cannot remedy it in the moment."

For companies in today's landscape, she identified the key vulnerability as falling behind in AI adoption.

"Should anyone connect with your customers in ways you are not able to execute… you will find yourself at a competitive disadvantage."