Alphabet’s revenue grew 25% to $127.6 billion in the three months to 30 September, and Google Cloud more than doubled. But earnings per share fell, and the company spent more on data centres and equipment than it brought in from operations, its third-quarter release shows.
Google Cloud revenue rose 103% to $30.7 billion, which Alphabet called “record growth”. Capital spending reached $51.4 billion, leaving free cash flow at minus $9.1 billion. Shares fell more than 7% in after-hours trading, CNBC reported.
In brief
- Revenue grew 25%, the 13th quarter in a row of double-digit growth, Alphabet said.
- Diluted EPS fell to $2.12 from $2.87, as an $8.7bn loss on equity securities replaced a year-earlier gain.
- Purchases of property and equipment more than doubled to $51.4bn.
Cloud carries the quarter
Alphabet said Cloud growth was “led by strong growth in Google Cloud Platform (GCP) across enterprise AI infrastructure and enterprise AI solutions, as well as core GCP services”, adding that “TPU systems sales were also a meaningful contributor”. TPUs are Google’s own AI chips; the release says Cloud’s product revenue comes “primarily from the sale of TPU systems”.
| Segment | Revenue | Change | Operating income (loss) |
|---|---|---|---|
| Google Services | $96.3bn | +11% | $39.2bn (from $33.5bn) |
| Google Cloud | $30.7bn | +103% | $11.1bn (from $3.6bn) |
| Other Bets | $0.4bn | +8% | -$2.0bn (from -$1.4bn) |
| Alphabet total | $127.6bn | +25% | $40.6bn (from $31.2bn) |
Google Services grew more slowly. Revenue rose 11%, “led by 12% growth in Google Search & other” to $63.4 billion. YouTube advertising grew 9% to $11.2 billion, and subscriptions, platforms and devices rose 11% to $14.3 billion. CNBC said analysts polled by LSEG had expected total revenue of $128.22 billion.
Chief executive Sundar Pichai said Alphabet is “now on a half-trillion dollar revenue run rate”. He added: “Google Cloud revenues grew 103%, powered by huge demand for our AI infrastructure and AI solutions. We’re also seeing strong demand for our TPU systems across a wide range of customers.” He said “Gemini 4 Argon and Carbon are now leading at the frontier”, that first-party model APIs process “nearly 32 billion tokens per minute”, and that the Gemini app “has reached one billion users”. Google gave Gemini 4 Carbon to cyber defenders earlier on the same day.
A swing below the operating line
Operating income rose 30% to $40.6 billion, a margin of 31.8%. The fall came below that line. Other income swung from a $12.8 billion gain a year ago to an $8.2 billion loss. That line includes an $8.7 billion loss on equity securities, against a $10.7 billion gain a year earlier. Alphabet says that loss cut net income by $6.7 billion and diluted earnings per share by $0.55. Net income available to common shareholders fell to $26.2 billion from $35.0 billion, and diluted EPS fell to $2.12 from $2.87.
Spending outruns cash
The bigger change is in the cash flow statement. Purchases of property and equipment were $51.4 billion, up 114% from $24.0 billion. By TSN’s arithmetic that is about 40% of revenue. Operating cash flow fell 13% to $42.3 billion, so free cash flow, by Alphabet’s own definition, was minus $9.1 billion, after minus $5.9 billion in the second quarter. CNBC described free cash flow as falling to $9.07 billion, but the release table shows a negative figure. Trailing 12-month free cash flow was still positive at $19.7 billion.
Alphabet is now funding part of that spending from outside. The release says it sold Class A and Class C shares worth $4.3 billion and $8.1 billion through at-the-market programmes and raised $28.7 billion, net, from senior unsecured notes. It bought back no shares in the quarter, against $11.5 billion a year earlier.
What the Cloud numbers show about AI demand
Cloud is now where Alphabet’s AI spending shows up as revenue. By TSN’s arithmetic, Cloud was about 24% of revenue but accounted for about 62% of the $25.2 billion increase, and its operating margin rose to about 36% from about 24%. That margin growth matters: it suggests Cloud is not simply buying revenue with discounts while costs balloon.
Selling TPU systems also changes what Google Cloud is. It is no longer only renting computing time but also selling the hardware that rivals and customers run AI on, which puts it closer to chipmakers’ business. Search is growing again at 12%, while Google is trying to push apps into Search and Gemini.
The weak point is cash. Two straight quarters of negative free cash flow, new debt and share sales mean Alphabet’s investors are now paying for capacity in advance. Critics such as Apollo’s Torsten Slok say AI has shown no payoff outside Big Tech. Alphabet’s answer is a Cloud business growing more than 100% at a rising margin, but whether that justifies $51 billion a quarter depends on that growth lasting.
Sources
- Alphabet, “Alphabet Announces Third Quarter 2026 Results”, earnings release (PDF), 28 October 2026
- Alphabet, Form 8-K, Exhibit 99.1 (earnings release), SEC EDGAR, 28 October 2026
- CNBC, Alphabet Q3 2026 earnings, 28 October 2026
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