Alphabet, the parent company of Google, reported a 25% year-on-year increase in revenue to $127.6 billion for the third quarter of 2026, supported by growth in Google Cloud, Search and artificial intelligence services. However, the company's shares declined following the results as investors assessed its rising AI infrastructure expenditure and slower growth in search advertising.
Announcing the results on October 28, Alphabet CEO Sundar Pichai said the company had reached an annualised revenue run rate of approximately $500 billion, reflecting growth across its businesses.
Google Cloud recorded revenue of $30.7 billion, an increase of 103% from the corresponding quarter last year. The company attributed the performance to demand for enterprise AI infrastructure, AI solutions and cloud computing services, alongside sales of its Tensor Processing Unit (TPU) systems.
Google Search and related services generated $63.35 billion in revenue, representing 12% year-on-year growth. Although the business continued to expand, the growth rate moderated from 17% in the preceding quarter.
Pichai said Google's year-on-year search query growth rate was the highest recorded in five years, supported partly by increased use of AI-powered search experiences.
The company also reported that its Gemini application had reached one billion users, indicating wider adoption of Google's AI products. Meanwhile, YouTube Music and Premium surpassed 150 million subscribers globally, including trial users.
Despite these developments, Alphabet's financial results fell short of some analyst expectations.
The company reported net income of $26.17 billion, compared with $34.98 billion in the corresponding quarter of 2025. Diluted earnings per share declined to $2.12 from $2.87.
Operating income increased 30% to approximately $40.58 billion, although it remained below the $43.19 billion anticipated by analysts surveyed by FactSet.
Alphabet's capital expenditure reached $51.36 billion during the quarter, reflecting substantial investment in computing infrastructure and AI capacity.
The company also recorded negative free cash flow of approximately $9.07 billion, raising questions among investors about the near-term financial implications of its infrastructure expansion.
Following the earnings announcement, Alphabet shares declined sharply in after-hours trading, with reports indicating a fall of approximately 10%.
Pichai shared the company's performance figures on X, prompting a brief response from Tesla and xAI chief Elon Musk, who wrote, "Wow."
Beyond its core businesses, Alphabet reported progress at Waymo, which has surpassed 300 million fully autonomous miles and expanded its operations across 15 major US cities.
The results highlight the differing performance trends within Alphabet's businesses. While Cloud revenue doubled and AI products attracted more users, slower Search growth and substantial capital expenditure remained areas of investor concern.
Alphabet's future performance will depend partly on how effectively it converts increasing AI usage and infrastructure investment into revenue and cash flow.
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