Deep dive
Alphabet
GOOGL · Hyperscalers
A hyperscaler on both sides of the AI trade: its cloud grew 103% in a year, it spent more on buildings and machines in the quarter than its operations brought in, and it has started raising money to keep going.
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- Figures as of
- Q3 2026, the quarter to 30 September 2026
- Last re-read
- 29 October 2026
- Stance
- Education, not advice
- Position
- AllFactsAI holds a position in Alphabet (GOOGL), as at 16 October 2026.
The short version
- Capital spending, September quarter$51.36bnPurchases of property and equipment, more than double the $23.95bn of a year earlier. $131.95bn in the first nine months, against $91.45bn in all of 2025.Filed
- Free cash flow, September quarter−$9.07bnAlphabet's own measure: $42.29bn of cash from operations less $51.36bn of capital spending. $19.75bn over the last twelve months.Company-adjusted
- Revenue backlog, 30 June 2026$519.5bnRemaining performance obligations at 30 June 2026, $513.9bn of it Google Cloud. Alphabet expects to recognise just over half within 24 months. The Q3 2026 earnings release does not give a later figure.Filed
The business
What it sells
Alphabet still mostly sells advertising. In the quarter to 30 September 2026, Google advertising — Search & other, YouTube ads and the Google Network — was $82.01bn of $127.58bn in revenue, 64.3%. Search & other alone was $63.35bn, up 12% on a year earlier.
Google Cloud is the second business and the fastest-growing one: $30.71bn of revenue, up 103%, from infrastructure and platform services, Google Workspace and the sale of TPU systems — the AI chips Google designs itself. Alphabet says those sales were a meaningful contributor to the growth, and gives no dollar figure for them.
The rest is subscriptions, platforms and devices — YouTube and Google One subscriptions, Google Play and consumer devices — at $14.29bn, and Other Bets, primarily autonomous transportation services and internet services, at $0.37bn of revenue against a $2.05bn operating loss.
- Google Search & other$63.35bn49.7%
- Google Cloud$30.71bn24.1%
- Google subscriptions, platforms, and devices$14.29bn11.2%
- YouTube ads$11.21bn8.8%
- Google Network$7.46bn5.9%
- Other Bets$0.37bn<1%
The September quarter by the lines Alphabet reports, as filed. They leave out $0.19bn of hedging gains, which is why they add up to a little less than total revenue. None of them is an AI line: AI runs through all six.
Where the revenue comes from
Hyperscalers
Place in the chain
Alphabet sits in the hyperscaler layer, at the top of the build-out: it buys the servers, chips and data centres the layers below sell. It also sells its own AI chips to other companies, so part of its exposure sits in the accelerator layer too. And its AI work is spent inside its own products — Search, YouTube, Gemini — as much as sold through its cloud, which is why there is no AI revenue line to read.
See its AI exposure →
The numbers
Revenue and purchases of property and equipment as Alphabet filed them, in its fourth-quarter results releases. Revenue grew 42% from 2022 to 2025; capital spending nearly tripled, from 11% of revenue to 23%. The first nine months of 2026 alone were $131.95bn.
Show as table
| Year | Revenue | Capital spending |
|---|---|---|
| 2022 | $282.84bn | $31.49bn |
| 2023 | $307.39bn | $32.25bn |
| 2024 | $350.02bn | $52.54bn |
| 2025 | $402.84bn | $91.45bn |
2025: Revenue $402.84bn, Capital spending $91.45bn.
Q3 2026, the quarter to 30 September 2026
The latest quarter
The September quarter's revenue was $127.58bn, up 25% on a year earlier and up from $119.80bn in the June quarter. Operating income was $40.58bn, up 30%. Search & other grew 12% and revenue from the United States 39%.
Google Cloud was the change. Revenue grew 103% to $30.71bn and its operating income more than tripled, to $11.12bn. Alphabet says TPU system sales were a meaningful contributor to that growth, and gives no dollar figure for them. The backlog of signed, unrecognised Google Cloud contracts was $513.9bn at 30 June 2026; the September-quarter release does not give a new figure.
The spending outran the cash. Capital spending was $51.36bn, more than double a year earlier, against $42.29bn of cash from operations, so free cash flow by Alphabet's own measure was −$9.07bn, after −$5.86bn in the June quarter. In the September quarter Alphabet raised $4.3bn by issuing Class A stock, $8.1bn by issuing Class C stock and $28.7bn of new notes, and bought back no shares.
Net income available to common stockholders was $26.17bn, and diluted earnings per share were $2.12. An $8.7bn net loss on equity securities decreased net income by $6.7bn and diluted earnings per share by $0.55, by Alphabet's own figures.
- Revenue, Q3 2026$127.58bnUp 25%, and 25% in constant currency, on a year earlier.Filed
- Operating income$40.58bnUp 30%: an operating margin of 31.8%, against 31% a year earlier.Filed
- Google Cloud operating income$11.12bnAgainst $3.59bn a year earlier.Filed
- Net income available to common stockholders$26.17bnAfter an $8.7bn net loss on equity securities. Alphabet says that loss decreased net income by $6.7bn.Filed
- Diluted earnings per share$2.12Alphabet says the loss on equity securities reduced it by $0.55.Filed
- Google Cloud's share of revenue24.1%$30.71bn of Google Cloud revenue ÷ $127.58bn of total revenue, September quarter.Computed
- Capital spending as a share of revenue40.3%$51.36bn of purchases of property and equipment ÷ $127.58bn of revenue, September quarter.Computed
- Cash from operations$42.29bnIn the September quarter, against $48.41bn a year earlier.Filed
- Depreciation of property and equipment$8.37bnIn the September quarter, against $5.61bn a year earlier.Filed
- Shared AI research, unallocated−$7.66bnAlphabet-level activities, which primarily reflect expenses related to shared AI research and development. −$4.47bn a year earlier.Filed
- Money raised in the quarter$41.1bn$4.3bn of net proceeds from Class A stock and $8.1bn from Class C stock, both under the at-the-market program, plus $28.7bn of senior unsecured notes, all as Alphabet states them. No shares were bought back, against $11.50bn a year earlier.Computed
- Long-term debt$125.10bnAt 30 September 2026, against $46.55bn at 31 December 2025.Filed
- Cash and marketable securities$265.10bnAt 30 September 2026, against $126.84bn at 31 December 2025.Filed
- Capital spending, 2025$91.45bnAgainst $52.54bn in 2024.Filed
What's working, what could break
What's working
- Google Cloud grew 103% in a year and earns a 36.2% operating margin, against 23.7% a year earlier.
- A $513.9bn Google Cloud backlog, at 30 June 2026, is signed demand, just over half of it due within 24 months. The September-quarter release does not update it.
- Search & other still grew 12%, so the AI answers in Search have not, on these numbers, eaten the business that pays for them.
- It designs its own AI chips and sells them. Alphabet says those TPU system sales were a meaningful contributor to Cloud's growth, and gives no dollar figure.
What could break
- Capital spending of $51.36bn was more than the $42.29bn its operations brought in: the quarter's free cash flow was −$9.07bn.
- It is raising money for the build: $41.1bn of new stock and notes in the quarter, and long-term debt was $125.10bn at 30 September 2026, against $46.55bn at the end of 2025.
- Google advertising was 64.3% of revenue, and Alphabet reports no AI revenue line, so the return on the spending cannot be read directly.
- Depreciation is rising fast — $8.37bn in the quarter, against $5.61bn a year earlier, up 49.2% — and will keep rising as the machines bought this year reach the income statement.
Our read
Verdict
The clearest case that AI spending can earn its keep — a cloud growing 103% at a 36.2% margin, on top of a search business still growing — and the clearest case of what it costs: a quarter in which the build took more cash than operations brought in, and the money came from shareholders and lenders. The question is no longer demand but whether the cloud's growth arrives fast enough to pay for the machines.
Editorial
What would change our read
- Free cash flow turning positive againIt was −$9.07bn in the September quarter, after −$5.86bn in the June quarter. Quarters in which operations pay for the building again, without new equity or debt, would show the build funding itself.
- Google Cloud's growth slowing103% growth carries the argument. If growth falls back while capital spending keeps rising, the spending is ahead of the demand.
- Search & otherIt grew 12%. A quarter in which it shrinks would mean AI answers are replacing the ads that pay for everything else.
Sources
- Alphabet Q3 2026 earnings release, Exhibit 99.1 (28 October 2026)Quarterly revenue by line, segment operating income, cash flow, free cash flow, the stock and notes issued, the balance sheet, the loss on equity securities
- Alphabet Q2 2026 Form 10-Q (filed 23 July 2026)Revenue backlog at 30 June 2026, the latest figure on file
- Alphabet Q4 2025 earnings release, Exhibit 99.1 (4 February 2026)Full-year 2024 and 2025 revenue and capital spending
- Alphabet Q4 2023 earnings release, Exhibit 99.1 (30 January 2024)Full-year 2022 and 2023 revenue and capital spending
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