Alphabet earnings: third quarter 2026

The quarter in brief

Alphabet, the owner of Google, grew its sales by 25% to $127.6 billion in the third quarter of 2026, faster than the 16% growth of a year earlier.¹ The engine was Google Cloud, which rents out computing power and Google's own AI chips: its sales roughly doubled, to $30.7 billion.¹

Operating profit, the profit from running the business before interest and tax, rose from $31.2 billion to $40.6 billion.¹ Yet net income, the profit after everything, fell. Profit for ordinary shareholders came to $26.2 billion, against $35.0 billion a year earlier, because Alphabet recorded an $8.7 billion loss on shares it holds in other companies.¹

The other story is cash. Alphabet spent $51.4 billion on data centres and equipment in the quarter, while its operations brought in $42.3 billion.¹ It is now spending more than its businesses produce, and borrowing to cover the gap.¹

The figures, as the company printed them

Against what analysts expected

Earnings per share, net income divided by the number of shares, came to $2.12, down from $2.87 a year earlier.¹ Analysts had expected $2.94 on average.² The release says the loss on shares in other companies cut earnings per share by $0.55.¹ Even with that $0.55 added back, the figure stays below the analysts' average, so the quarter came in below their forecast on both measures, with or without the one-off loss.

What the company expects

Alphabet gave no figures for the coming quarter or for the year.¹ It put no numbers on sales, costs, investment or demand, and said nothing about whether any earlier view of the year had been raised, lowered or kept.¹ The only words about the future came from the chief executive, who said the company is excited by the opportunities ahead.¹

That leaves no yardstick from the company itself: no stated level of spending on data centres for the rest of the year, and no stated point at which cash from the business should catch up with that spending.

The strong points

Sales rose 25% to $127.6 billion, against 16% growth a year earlier, and were 6% higher than in the quarter before.¹ For a company of this size, growth getting faster rather than slower is unusual. It leaned heavily on the United States, where sales rose 39%, against 9% in Europe, the Middle East and Africa and 12% in Asia-Pacific.¹

Google Cloud's sales rose 103% to $30.7 billion, and its operating profit more than tripled.¹ Cloud supplied most of the company's extra sales, while the older businesses grew more steadily: Search and other by 12%, Google Services as a whole, mainly advertising, by 11%.¹ This matters because Cloud is where the heavy spending on data centres has to earn its return, and a business doubling while growing far more profitable is the first evidence that it can.

Management says AI is driving more searches on Google, with the fastest growth in searches in five years, including searches by people looking to buy.¹ It also says the Gemini app has reached one billion users.¹ The long-standing worry is that AI chatbots would pull searches away from Google's search and the advertising attached to it; these figures point the other way, though our figures do not show how much of the advertising growth comes from more searches rather than higher prices.

The weak points

Free cash flow, the cash left after running the business and investing in it, was $9.1 billion below zero, the second quarter in a row in negative territory.¹ Over the last twelve months it totals only $19.7 billion, less than the $24.6 billion Alphabet produced in the last quarter of 2025 alone.¹ Spending on equipment more than doubled while cash from operations fell from $48.4 billion to $42.3 billion, partly because $3.2 billion went into inventory and $7.8 billion into other assets.¹ For a company long known as a great generator of cash, this is a change of character.

Alphabet is filling the gap with outside money. Long-term debt reached $125.1 billion, up from $46.5 billion at the end of 2025.¹ In the quarter it raised $29.0 billion of new debt and $12.4 billion from new shares, and earlier this year $19.1 billion through preferred shares that must later convert into ordinary ones.¹ Interest expense rose from $143 million to $967 million, and share buybacks, $11.5 billion a year ago, have stopped this year.¹ New shares also spread future profit across more owners.

Costs not assigned to any business, mainly shared research on AI models, rose about 71% to $7.7 billion.¹ Research and development across the company rose from $15,151 million to $20,640 million, and the 30% rise in operating profit was helped by general and administrative costs falling, from $7,393 million to $6,138 million.¹ Building AI models is a large, fast-growing cost outside Cloud and advertising, and it took back part of their gains.

What to watch

The clearest signal is what Cloud's biggest customers plan to spend on AI computing, and how much of it they commit to Google in advance. Large companies and AI developers sign contracts for computing capacity well before they use it, so those commitments show, ahead of the sales, whether the new data centres will be filled. If customers keep raising their AI budgets and signing larger, longer commitments, the borrowed billions are building capacity that will be used; if they trim budgets, stretch out orders or cancel, Alphabet is left with expensive buildings and more debt.

A second signal is what Alphabet pays to borrow. The rates lenders demand on its new bonds show how cheap the spending is to carry: while they charge little, the debt is a modest weight; if that cost rises, interest eats further into profit, and it has already grown from $143 million to $967 million a quarter.¹

The next results are the next check on whether cash from the business starts to catch up with the spending.

Our verdict on the quarter

In all, a mixed report. The business itself had an excellent quarter: sales up 25%, growth faster than a year ago, Cloud doubling and becoming far more profitable, and signs that AI is adding to Search rather than taking from it.¹ But earnings per share came in below what analysts expected even without the investment loss.² And the cost of the growth now shows in the cash: Alphabet is spending more than its businesses bring in, has stopped buying back shares and is borrowing heavily to build.¹

Notes

1. Alphabet's results release, 28 October 2026: sec.gov. ↩
2. Nasdaq's earnings calendar, 28 October 2026. ↩