Alphabet revenue rises 25% to $127.58 billion as free cash flow turns negative
Key Facts
Alphabet’s third-quarter 2026 revenue rose 25% year over year to $127.58 billion, but fell short of the analyst average estimate of $127.97 billion, according to The Associated Press. At the same time, the company posted negative free cash flow of $9.07 billion, compared with an analyst estimate of a $36 million cash burn, according to data cited by Reuters via Investing.com. The results came as its cloud computing business expanded rapidly, with Google Cloud revenue rising 103% to $30.7 billion. Alphabet’s statement described the quarter as the 13th consecutive quarter in which the company achieved double-digit year-over-year revenue growth. The company also said it had reached a half-trillion-dollar annual revenue run rate.
Cloud growth outpaced the rest of the company’s businesses, and the unit posted record revenue growth, according to The Associated Press. Alphabet said sales of TPU systems contributed materially to Google Cloud revenue growth, alongside infrastructure and enterprise AI solutions. The company’s purchases of property and equipment exceeded $51 billion in the quarter, while The Associated Press said free cash flow reflected a larger cash drain. The figures showed a widening gap between cloud business growth and the cash left after capital spending. Spending remained a focus as the company expected to increase it significantly next year.
In services, Google Services revenue rose 11% to $96.3 billion, driven by growth in Search, according to Alphabet’s statement filed with the U.S. Securities and Exchange Commission. Revenue from Google Search and other advertising increased 12% to $63.3 billion, while YouTube advertising revenue rose 9% to $11.2 billion, according to The Associated Press. The chief executive said the annual growth rate in Search queries reached its highest level in the past five years. Alphabet’s consolidated operating income increased 30%, and its operating margin was 31.8% in the third quarter. The results showed growth in Search and advertising alongside faster expansion in cloud.
Alphabet’s diluted earnings were $2.12 per share, affected by an $8.7 billion loss on equity investments that reduced earnings by 55 cents per share, according to The Associated Press. The analyst average estimate for earnings was about $3.01 per share. By contrast, Microsoft said its first-quarter fiscal 2027 results beat expectations for revenue, operating income and earnings per share. Microsoft revenue in the quarter, which ended Sept. 30, 2026, was $92.3 billion, up 19% year over year, while net income rose 32% to $36.6 billion. Microsoft Cloud revenue was $63.9 billion, up 30%, and Azure revenue increased 48%.
Alphabet shares fell 12.9% in the Oct. 29 session and were heading for their worst trading day since they began trading more than 20 years ago, according to The Associated Press. The stock closed at $324.89 on Oct. 28, then closed at $284.74 on Oct. 29, according to EL7 data. The decline followed results showing negative free cash flow and high capital spending, while cloud and advertising revenue continued to grow. These data alone did not link the share move to a specific cause. Alphabet’s chief financial officer said the company still expected a significant increase in capital spending during 2027.
The chief financial officer said more details on 2027 spending would be presented during the fourth-quarter earnings call, according to The Associated Press. This follows 13 consecutive quarters of double-digit year-over-year revenue growth at Alphabet, while its annual revenue run rate reached half a trillion dollars, according to its statement. In a cloud comparison, Microsoft Cloud revenue was $63.9 billion in its first quarter of fiscal 2027, compared with $30.7 billion for Google Cloud in Alphabet’s third quarter of 2026. But the reported growth rates were 30% for Microsoft Cloud and 103% for Google Cloud. Alphabet has set its fourth-quarter earnings call as the occasion to provide further details on the path of its capital spending.