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Alphabet, Google’s parent company, reported a 25% year-on-year increase in third-quarter revenue to $127.6 billion, driven by strong growth in its cloud business and continued expansion in Search. For the quarter ended September 30, 2026, Alphabet reported operating income of $40.6 billion, up 30% from a year earlier, with an operating margin of 31.8%. Google Cloud was the fastest-growing major business segment, with revenue surging 103% to $30.7 billion from $15.2 billion a year earlier. Growth came from demand for AI infrastructure, enterprise AI solutions and core Google Cloud Platform services. Sales of Google’s Tensor Processing Units (TPUs) also contributed to the increase. “We are working hard to bring more capacity online to meet this long-term demand. At the same time, we’re seeing strong demand for our TPU systems across a wide range of customers, and we expect that to continue as we scale,” said CEO Sundar Pichai. Google Cloud’s backlog reached $561 billion, reflecting commitments for future services and infrastructure. Alphabet expects to recognise more than 55% of that backlog as revenue over the next 24 months. However, expanding computing capacity and building up TPU inventory are expected to put further pressure on cash flow. The cloud business reported operating income of $11.1 billion, compared with $3.6 billion in the year-ago quarter. Google Services, which includes Search, YouTube, subscriptions, platforms and devices, generated $96.3 billion in revenue, up 11% year-on-year. Google Search and other revenue grew 12% year-on-year to $63.4 billion in the third quarter of 2026, slowing from 17% growth in the previous quarter and 19% in the first quarter. YouTube advertising revenue grew 9% to $11.2 billion. Google Network revenue was nearly flat at $7.5 billion. Revenue from subscriptions, platforms and devices rose to $14.3 billion from $12.9 billion a year earlier. Alphabet generated $82 billion from advertising overall, compared with the $83.4 billion analysts had expected. Philipp Schindler, Google’s Chief Business Officer, attributed the sharper-than-expected slowdown in Search advertising growth partly to increased use of AI Mode, Google’s conversational search interface. “We are now scaling high-quality ads within AI Overviews and AI Mode to more users and queries,” he said during the earnings call. “We are announcing the expansion of ads in AI Mode into international markets alongside multi-turn ads in AI Mode in the US,” he added. Pichai, however, said AI was driving higher Search usage. “Our year-over-year query growth rate is the highest it’s been in the last five years,” he said, pointing to growth in commercial queries as well. Alphabet also reported growth across its AI products and services. The Gemini app crossed one billion users, which Pichai described as the fastest-growing product in Google’s history. The company’s first-party model APIs were processing nearly 32 billion tokens per minute, up 40% from the previous quarter and more than four times the level recorded a year earlier. During the quarter, Google introduced Gemini 4 Argon and announced Gemini 4 Carbon. Pichai said developer-platform usage of Argon in its first week grew three-and-a-half times faster than Gemini 3, despite capacity constraints. He also said Google’s internal teams across Chrome, Ads and Search had used Argon to increase code output by 35% while reducing errors by 30%. The company is positioning its AI models for applications spanning software development, scientific research, cybersecurity and enterprise workloads. Alphabet’s investments in AI infrastructure are becoming a growing concern for investors. The company reported negative free cash flow of $9.1 billion in the third quarter, following negative free cash flow of $5.9 billion in the previous quarter. The latest result marked its second consecutive quarter of negative free cash flow. Chief Financial Officer Anat Ashkenazi said Alphabet expects capital expenditure to increase substantially in 2027, following a forecast of $195 billion to $205 billion for 2026. The spending comes as Alphabet competes with Microsoft, Amazon and other technology companies to secure computing capacity for AI model development and deployment.
document fetched 2026-10-30 02:57