Alphabet's Cloud Revenue Doubles to $30.7B, but $51B Capex Pushes Free Cash Flow Negative

Alphabet (GOOGL) reported third-quarter revenue of $127.58 billion on Wednesday, up 25% from a year earlier and slightly below the $127.91 billion estimate provided to MarketCatalyst. Google Cloud revenue more than doubled to $30.71 billion, up 103%, and operating income rose 30% to $40.58 billion. Capital spending of $51.36 billion exceeded operating cash flow of $42.29 billion, leaving free cash flow negative at $9.07 billion. GAAP EPS was $2.12, reduced by an $8.7 billion loss on equity securities. Shares were down more than 6% in extended trading, according to market data.

Headline results

The operating margin was 31.8%, and by our calculation revenue came in about 0.3% under the provided estimate. The $2.97 EPS estimate provided to MarketCatalyst is not comparable with the reported figure, because the $8.7 billion equity-securities loss reduced EPS by approximately $0.55, according to the data provided. Without that loss, EPS would have been roughly $2.67 by our calculation, still below the estimate. Net income fell from $34.98 billion a year earlier, a decline of roughly 25% by our calculation.

Segment results

Within Google Services, Search and other revenue grew 12% to $63.35 billion and YouTube advertising rose 9% to $11.21 billion. Alphabet said Search query growth was the fastest in five years. Google Cloud, which Alphabet attributed to AI infrastructure, AI solutions and TPU system sales, saw operating income roughly triple to $11.12 billion. By our calculation, that is a 36% operating margin, compared with about 41% for Google Services, and Cloud is now about 24% of total revenue. Analysts had expected Cloud revenue of about $29.57 billion, according to market data.

AI adoption

CEO Sundar Pichai said the Gemini app has reached 1 billion users. Alphabet's first-party model APIs processed nearly 32 billion tokens per minute, more than four times the rate a year earlier. YouTube Music and Premium passed 150 million subscribers, including trials. Alphabet also described itself as on a half-trillion-dollar annual revenue run rate.

Capex, cash flow and financing

Capital expenditures more than doubled to $51.36 billion, well above operating cash flow of $42.29 billion. Analysts had expected free cash flow near break-even, according to market data, so the shortfall was larger than forecast. During the quarter Alphabet issued $12.4 billion of common stock and $28.7 billion of senior unsecured notes. By our calculation, that is $41.1 billion raised, more than four times the free cash flow deficit.

What it means

The quarter shows how quickly Cloud is scaling and how much it costs to meet that demand. Revenue was a touch light, EPS was hit by a non-operating loss, and the after-hours decline suggests investors focused on cash burn and external funding. The call should clarify how long capex stays above operating cash flow, how Alphabet plans to fund the gap, and how much of Cloud's growth is TPU system sales as opposed to recurring services.

Sources: Alphabet third-quarter 2026 results (Oct. 28). Estimates, segment operating income, cash-flow, financing and EPS-impact figures are as provided to MarketCatalyst. This is informational, not a recommendation to buy or sell.