Alphabet Q3 2026: Cloud revenue doubled to $30.7B, sales up 25%, but EPS fell 26% on an $8.7B stake loss

Alphabet, Google's parent company, grew revenue 25% to $127.6 billion in the third quarter of 2026, up from 24% growth in Q2, and almost all of the acceleration came from one place: Google Cloud, whose revenue more than doubled to $30.7 billion. Profit per share still fell 26%, to $2.12 from $2.87. That drop has nothing to do with how Google's businesses performed. It comes from the value of the stakes Alphabet holds in other companies, which fell by $8.7 billion this quarter after rising by $10.7 billion a year earlier.

This report is written from the earnings release Alphabet filed with the SEC on October 28, 2026 (Form 8-K, Exhibit 99.1). The full quarterly report (10-Q), which carries management's discussion of results, the Search paid-click figures and more detail on Cloud, has not been filed yet.

The quarter in numbers

Operating margin is the share of revenue left after the costs of running the business, before investment gains, interest and tax. "pp" means percentage points; "n/m" means not meaningful. Net income available to common shareholders, after $298 million of dividends on the preferred shares Alphabet issued earlier this year, was $26,170 million (down 25.2%). Segment margins, free cash flow and the year-ago free cash flow figure are our calculations from the release's cash flow statement.

Takeaway: Alphabet has become a two-engine company. Cloud added $15.6 billion of revenue year over year, against $9.3 billion from all of Google Services (Search, YouTube, Android, subscriptions). Its 36.2% margin is now close to Google Services' 40.7%. But the build-out that feeds Cloud is consuming more cash than the whole company produces, and Search, the business paying for it, grew 12%, down from 17% last quarter. The investment case now rests on Cloud keeping up something close to this pace.

Where the growth came from

Google Cloud: $30.7 billion, +103%, operating margin 36.2%. Cloud revenue rose 24% from the second quarter alone ($24.8 billion). The release attributes the growth to Google Cloud Platform "across enterprise AI infrastructure and enterprise AI solutions, as well as core GCP services," with TPU system sales "a meaningful contributor." Two things inflate the year-on-year rate: TPU hardware sales did not exist a year ago, and the Wiz acquisition (Alphabet has spent $34.1 billion on acquisitions and intangible assets this year, and goodwill rose to $58.1 billion from $33.4 billion in December) is in this year's figures and not last year's. The release does not split Cloud revenue between hardware and services, so the organic growth rate cannot be calculated yet. The margin, though, rules out the worry that chip sales would be low-margin filler: Cloud's operating margin rose to 36.2% from 23.7% a year ago and 35.6% in Q2.

The geographic split shows how concentrated the growth is. United States revenue rose 39%, to $67.7 billion, while Europe, the Middle East and Africa grew 9% (10% at constant exchange rates) and Asia-Pacific 12% (15%). That fits a quarter driven by large US cloud and chip contracts rather than by a broad lift in advertising.

Google Services: $96.3 billion, +11%, operating margin 40.7%.

• Search & other: $63.4 billion, +12%. Slower than Q2's 17%, and Q3 revenue was essentially flat with Q2's $63.3 billion. Pichai says Search query growth is "the highest it's been in the last five years," including commercial queries. More searches with slower revenue growth would mean each search earns less, but the release gives neither the number of paid clicks nor the price per click, so this can't be checked until the 10-Q.
• YouTube ads: $11.2 billion, +9%. Slower than Q2's 13%.
• Google Network: $7.5 billion, +1%. Ads Google places on other companies' websites and apps; this business has stalled.
• Subscriptions, platforms and devices: $14.3 billion, +11%. YouTube Music and Premium passed 150 million subscribers including trials.

Traffic acquisition costs, the payments Google makes to Apple, Samsung, browsers and partner websites to place its search box and ads, rose 10% to $16.4 billion, slower than the 11% growth in ad revenue.

Other Bets (Waymo and other ventures) brought in $372 million of revenue and lost $2.0 billion, up from a $1.4 billion loss.

What the headline numbers hide

The EPS drop is a mark-to-market swing. Alphabet owns stakes in other companies, including SpaceX, and accounting rules require it to restate their value every quarter and run the change through profit. This quarter that produced an $8.7 billion loss on equity securities; a year ago it produced a $10.7 billion gain. Alphabet's own footnotes put the after-tax effect at minus $0.55 a share this year and plus $0.68 a year ago. Without them, EPS would have been about $2.67 against $2.19, up 22%. Pre-tax income excluding these gains and losses rose 23%, to $41.0 billion from $33.3 billion.

The operating profit growth flatters the business. Operating income rose 30%, but the year-ago quarter carried a $3.5 billion European Commission antitrust fine. Excluding it, as Alphabet itself did last year, operating income rose 17% and the operating margin fell to 31.8% from 33.9%. Setting the fine aside on the EPS side too (about $0.29 a share before any tax effect; the release gives none), underlying EPS growth falls to roughly 8%. Three costs grew faster than revenue:

• Depreciation rose 49%, to $8.4 billion. Depreciation is the cost of the data centers and servers spread over their working life. It is now growing about twice as fast as revenue, and property and equipment rose to $372.8 billion from $321.2 billion at the end of June, so it will keep rising.
• Unallocated AI research rose 71%, to $7.7 billion. "Alphabet-level activities," mostly shared work on the Gemini models, is charged to no segment, so it doesn't show in either Services' or Cloud's margin. Total R&D rose 36%.
• Services' margin is lower once the fine is removed. Google Services' margin was 40.7%, against 42.5% a year ago excluding the fine (38.5% including it).

Cash conversion. Operating cash flow was $42.3 billion against $26.5 billion of net income, which looks strong, but the gap is mostly the non-cash $8.7 billion investment loss, $8.4 billion of depreciation and $8.6 billion of stock-based pay. Operating cash flow fell 13% from $48.4 billion a year ago even as operating income rose 30%. Our Q2 report flagged that the $5.2 billion European Commission Android fine was due to be paid in July; the release doesn't itemize it, but a swing in "accrued expenses and other liabilities" from an $8.1 billion inflow a year ago to a $1.2 billion outflow is consistent with that payment.

Inventory is still climbing. Inventory rose to $13.3 billion from $10.0 billion at the end of June and $2.4 billion in December, a $3.2 billion build in the quarter, as Alphabet stocks TPU systems for customers. Receivables (money owed by customers) rose 5% from June to $72.8 billion, roughly in line with the 6.5% sequential rise in revenue, so there's no sign of customers paying more slowly.

Lower tax rate, more interest, more shares. The tax rate fell to 18.2% from 20.5%, though part of that is the tax effect of the investment loss itself. Interest expense rose to $967 million from $143 million as long-term debt climbed to $125.1 billion from $46.5 billion in December. Alphabet bought back no shares this quarter, against $11.5 billion a year ago, and issued 36 million new ones through its at-the-market program. The diluted share count rose 1.4%, so buybacks are now working against EPS rather than for it.

On balance the quarter is understated: reported EPS fell 26%, but excluding the investment marks in both years it rose about 22%, though that growth slows to about 8% once last year's $3.5 billion fine is also set aside.

Did last time's read hold up?

Our Q2 2026 report listed four things to watch.

• Cloud margin holding near 35% as hardware sales grow: it held, at 36.2%.
• Depreciation catching up with capex: it is. Depreciation growth sped up from 43% in the first half to 49% in Q3, and operating margin excluding last year's fine fell.
• Whether Search keeps growing: growth slowed to 12% from 17%, and revenue was flat with Q2. The paid-click figure we leaned on last time isn't in the release; the 10-Q will show whether clicks slowed too.
• Volatility below the operating line: as expected. Other income was an $8.2 billion loss this quarter, after about $135.7 billion of gains in the first half.

What comes next

The release gives no revenue, margin or capex outlook. Last year's Q3 release raised the capex range; this one gives no figure, so any 2026 spending guidance comes from the earnings call, not the filing. Year-to-date capex is $132.0 billion, against $63.6 billion in the same nine months of 2025.

Our read: the business is in better shape than the EPS line says, and Cloud's combination of 103% growth and a 36% margin is the strongest number in the release. The risks are in what funds it. Free cash flow has been negative for two quarters running (minus $5.9 billion in Q2, minus $9.1 billion in Q3); total assets passed $1 trillion, up from $595 billion in December; and the money is coming from debt and new shares rather than from Search. Four things to check in the 10-Q and the next quarter:

1. The Cloud split between TPU hardware and services. Hardware sales can be lumpy. If services alone are growing well above 50%, the growth is durable; if chips are most of the gap, it is less so.
2. Search paid clicks and cost per click. These will show whether 12% growth is a pricing slowdown or a volume one.
3. Depreciation against revenue. At $8.4 billion a quarter and growing near 50%, it will keep eating into margins until the new data centers produce matching revenue.
4. How much more outside money is raised. $27.6 billion remains under the share-sale program. Further issuance means more dilution for existing shareholders.

Source: Alphabet Inc. Form 8-K, Exhibit 99.1 (Q3 2026 earnings release), filed with the SEC on October 28, 2026 (accession 0001652044-26-000080). The year-ago one-off figures ($3.5 billion EC fine, $0.68 per-share investment-gain effect) are from Alphabet's Q3 2025 earnings release. Percentage changes, segment margins, free cash flow and the figures excluding investment gains and the fine are our calculations from the releases. GOOGL (Class A) and GOOG (Class C) are the same company with the same results.