Latest quarter

Alphabet reported Q2 FY2026 revenue of $119.8 billion, up 24.2% from $96.4 billion a year earlier. Revenue as the consensus counts it was $103.6 billion, above the $101.3 billion consensus. The supplied information does not provide an adjusted-EPS consensus comparison.

Alphabet reported diluted EPS of $9.11, compared with $2.31 in Q2 FY2025, while net income was $112.2 billion. The filing said Google Services revenue increased $12.0 billion and Google Cloud revenue increased $11.1 billion; Google Network revenue decreased $51 million. Alphabet reported gross margin of 61.6%, compared with 59.5%, and operating margin of 34.0%, compared with 32.4%. Operating cash flow was $39.1 billion, while free cash flow was −$5.9 billion as capital expenditure exceeded operating cash flow. The company said it began recognizing revenue from TPU systems delivered to customer data centers during the quarter.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

Sundar Pichai said Alphabet continued to see demand for AI products across consumer, developer and enterprise uses, while the company remained supply constrained. He said search revenue grew 17% and YouTube advertising revenue grew 13%, and attributed Cloud’s 82% revenue growth to demand for AI infrastructure and AI solutions. Pichai said AI Mode had surpassed 1 billion monthly active users after its global expansion, while the Gemini app had 950 million monthly active users.

Anat Ashkenazi said Google Cloud’s backlog reached $514 billion after increasing by more than $50 billion sequentially, and said the majority related to typical Google Cloud Platform contracts across a broad customer mix. She said Alphabet expects to recognize just over 50% of total backlog as revenue over the next 24 months. Ashkenazi said Alphabet began recognizing TPU-system sales revenue in Q2, but expects only a relatively small portion of revenue from existing agreements in FY2026 and the vast majority in FY2027.

On investment, Ashkenazi said Q2 capital expenditure was $44.9 billion, with most spending directed to technical infrastructure. She said Alphabet plans to use third-party capacity in Q3 while it builds internal capacity, and said those costs will create modest near-term pressure on Google Cloud operating margin. She also said higher depreciation and data-center operating costs will continue to affect the profit and loss statement, alongside hiring in AI and Cloud and marketing for AI products.

Analysts pressed Pichai and Ashkenazi on capacity constraints, returns on investment, model competition and the company’s funding. Pichai said Alphabet uses a return-on-investment framework and aims to offer models across performance and cost requirements. Ashkenazi said Alphabet would fund investment needs first with cash from operations, then debt and equity, and said the company was not planning to return to equity markets except for its at-the-market program. Ashkenazi said Alphabet does not disclose margins for individual products or infrastructure components, including TPU systems.

Guidance

Alphabet updated its FY2026 capital-expenditure guidance to $195.0 billion–$205.0 billion. Ashkenazi said Alphabet expects Google Cloud to deliver strong revenue growth in Q3 FY2026, while third-party capacity use is expected to create modest pressure on Google Cloud operating margin. The company expects free cash flow to remain under pressure in FY2026 because of technical-infrastructure investment, and expects capital expenditures to increase significantly in FY2027. Alphabet also expects only a relatively small portion of revenue from existing TPU-system sales agreements in FY2026, with the vast majority realized in FY2027.

How analysts reacted

Analysts’ price targets: $340.00 to $515.00, $426.50 on average (as of 18 October 2026).