Alphabet Q3 Earnings Call Highlights

Key Points

• Alphabet’s Q3 revenue rose 25% to $127.6 billion, marking its 13th consecutive quarter of double-digit growth, while operating income increased 30% to $40.6 billion. Results were partly offset by an $8.2 billion unrealized loss on its SpaceX investment and negative free cash flow of $9.1 billion.
• AI drove stronger Search usage and rapid Cloud expansion: Search revenue increased 12% to $63.3 billion, while Google Cloud revenue more than doubled to $30.7 billion and operating income tripled to $11.1 billion. Gemini reached 1 billion users, and Cloud backlog climbed to $561 billion.
• Alphabet is maintaining its 2026 capital-spending forecast of $195 billion to $205 billion and expects spending to rise significantly in 2027 as it builds AI infrastructure. The investment is expected to increase depreciation and data-center costs and may pressure near-term Cloud margins.

Alphabet NASDAQ: GOOG reported third-quarter 2026 revenue of $127.6 billion, up 25% from a year earlier, as growth in Search, Google Cloud and subscriptions helped drive its 13th consecutive quarter of double-digit revenue growth. CEO Sundar Pichai said the company had reached a half-trillion-dollar annual revenue run rate.

Operating income rose 30% to $40.6 billion, while operating margin reached 31.8%. However, the company recorded negative other income and expenses of $8.2 billion, primarily reflecting an unrealized loss on its SpaceX investment following a decline in SpaceX’s stock price during the quarter. Alphabet generated $42.3 billion in operating cash flow but reported negative free cash flow of $9.1 billion as capital expenditures and inventory investment increased.

AI drives Search usage and Cloud growth

Pichai said Alphabet’s artificial-intelligence investments contributed to its fastest year-over-year query growth rate in five years. Search revenue rose 12% to $63.3 billion, with retail the largest contributor to growth, followed by finance.

The company is expanding AI features across Search, including AI Overviews and AI Mode. Pichai said AI Mode queries are, on average, three times longer than traditional searches, while one in five global AI Mode searches use voice, images or documents. Alphabet also surpassed 50 billion visual searches per month.

Philipp Schindler, Alphabet’s senior vice president and chief business officer, said the company is scaling ads in AI Overviews and AI Mode to additional users and queries. Alphabet is also expanding AI Mode advertising internationally and introducing multi-turn ads in AI Mode in the U.S.

Schindler said most AI Mode queries are incremental and may create additional monetization opportunities over time, though lower monetization in AI Mode affected Search growth during the quarter. He attributed the deceleration in Search growth relative to the prior quarter primarily to foreign-exchange effects, as well as retail and media-specific factors.

Alphabet’s Gemini app reached 1 billion users, which Pichai described as the fastest-growing product in Google’s history. First-party model APIs processed nearly 32 billion tokens per minute, up 40% sequentially and more than four times the level of a year ago.

The company announced Gemini 4 Carbon, which Pichai called its strongest frontier model, following the recent release of Gemini 4 Argon. Carbon is initially being rolled out to a subset of trusted cyber defenders and is being tested by the U.S. government. Pichai said Alphabet expects to introduce more efficient model versions intended to improve speed, cost and deployment across its consumer products.

Google Cloud revenue more than doubles

Google Cloud revenue rose 103% to $30.7 billion, driven by growth in Google Cloud Platform, AI infrastructure, AI solutions and core cloud services. TPU system sales were also a meaningful contributor, according to CFO Anat Ashkenazi. Cloud operating income more than tripled to $11.1 billion, and the segment’s operating margin increased to 36.2% from 23.7% a year earlier.

Google Cloud CEO Thomas Kurian said the business now has 18 product lines producing more than $1 billion each in annual revenue. Its backlog reached $561 billion, with Alphabet expecting to recognize just over 55% of that amount as revenue over the next 24 months.

Kurian said more than 2,600 customers have used at least 100 billion tokens over the past 12 months, while nearly 90% of Fortune 100 companies use Gemini Enterprise. Alphabet has sold more than 100 million knowledge-work seats across its AI services, he said.

Demand for TPU systems remains strong, with nearly 100 customers currently using the systems. Kurian highlighted agreements involving Anthropic, Apple, Oracle and Crux AI, among others. Ashkenazi said system sales require Alphabet to build inventory after contracts are signed and before revenue is recognized, creating a different cash-flow cycle than traditional capital expenditures. She said more TPU system revenue is expected in 2027.

YouTube subscriptions, Waymo expansion and investment outlook

YouTube advertising revenue increased 9% to $11.2 billion, with brand advertising the largest contributor and notable strength in living-room viewing. Schindler said living-room viewing accounted for more than one-third of total YouTube ad revenue during the quarter.

Alphabet surpassed 150 million YouTube Music and Premium subscribers globally, including trials. Subscription platforms and devices revenue increased 11% to $14.3 billion, driven by YouTube subscriptions and demand for AI plans in Google One.

Pichai said Waymo had driven more than 300 million fully autonomous miles and now operates in 15 major U.S. cities. The company recently opened public service in San Antonio, San Diego and Tampa, while planning expansions into Canada, Germany, Singapore and Spain. Other Bets revenue was $372 million, while its operating loss was $2 billion as Alphabet continued to invest in Waymo and other initiatives.

Capital expenditures totaled $51.4 billion in the third quarter, primarily for technical infrastructure supporting AI investments. Alphabet maintained its 2026 CapEx guidance of $195 billion to $205 billion and said it expects capital expenditures to increase significantly in 2027. Ashkenazi said the increased infrastructure investment will raise depreciation and data-center operating costs, while third-party computing capacity coming online in the fourth quarter is expected to create near-term Cloud margin headwinds.

Alphabet ended the quarter with $265.1 billion in cash and marketable securities and $125.1 billion in long-term debt. The board declared a quarterly cash dividend of $0.22 per share, payable in December.

About Alphabet (NASDAQ:GOOG)

Alphabet Inc is a technology holding company best known as the parent organization of Google. Founded in 2015 through a corporate restructuring, Alphabet oversees Google and a collection of businesses focused on technology, online services, communications, artificial intelligence, and other emerging areas.

Google's principal products and services include its internet search engine, digital advertising platforms, YouTube, Android, Chrome, Google Maps, Google Play, and Google Workspace. The company also provides cloud computing, data storage, cybersecurity, productivity, and artificial intelligence services through Google Cloud.

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