Alphabet Q3: Cloud Revenue Doubles, Free Cash Flow Turns Negative

What happened

In after-hours trading, Alphabet shares fell, by about 8% according to reports; the results also showed operating income of $40.6 billion, up 30% year over year, and net income of $26.2 billion, down from $34.9 billion a year earlier, as equity securities swung from a $10.7 billion net gain a year ago to an $8.7 billion net loss, taking earnings per share from $2.87 down to $2.12.

Cloud was the fastest-growing segment: Google Cloud revenue reached $30.7 billion, up 103% year over year, above the $29.57 billion average estimate compiled by LSEG, and Alphabet said sales of its in-house TPU chip systems made a meaningful contribution to growth; Search and other revenue was $63.4 billion, up 12%, below the $64.96 billion expectation; YouTube advertising revenue was $11.2 billion, up 9%.

Spending and financing both grew: quarterly capital expenditure was $51.4 billion, up 114% year over year, and free cash flow was negative $9.1 billion, after negative $5.9 billion in the previous quarter; Alphabet raised $12.4 billion through share sales and $28.7 billion through notes during the quarter and repurchased no shares; the company kept its full-year 2026 infrastructure spending outlook at $195 billion to $205 billion.

Key facts

1. Revenue: $127.6 billion, up 25% year over year, slightly below the $128.2 billion market expectation.
2. Google Cloud: revenue of $30.7 billion, up 103% year over year, above the $29.57 billion average estimate compiled by LSEG; TPU system sales made a meaningful contribution to growth.
3. Search and YouTube: Search and other revenue of $63.4 billion, up 12%, below the $64.96 billion expectation; YouTube advertising revenue of $11.2 billion, up 9%.
4. Profit: operating income of $40.6 billion, up 30% year over year; net income of $26.2 billion, down from $34.9 billion a year earlier; earnings per share of $2.12, below the $3.02 expectation.
5. Equity securities: the line swung from a $10.7 billion net gain a year ago to an $8.7 billion net loss.
6. Capital expenditure and cash flow: capital expenditure of $51.4 billion, up 114% year over year; free cash flow of negative $9.1 billion, after negative $5.9 billion in the previous quarter.
7. Financing: $12.4 billion raised through share sales and $28.7 billion through notes during the quarter, with no share repurchases.
8. Full-year outlook: the 2026 infrastructure spending outlook stays at $195 billion to $205 billion.
9. After-hours shares: Alphabet shares fell about 8% in after-hours trading, according to reports.