A month has gone by since the last earnings report for Alphabet (GOOGL). Shares have added about 1.4% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Alphabet due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the latest earnings report in order to get a better handle on the important drivers.
Alphabet Q1 Earnings & Revenues Beat Estimates, Up Y/Y
Alphabet delivered first-quarter 2026 earnings of $5.11 per share, up 82% year over year and ahead of the Zacks Consensus Estimate by 93.6%. Consolidated revenues rose 21.8% year over year to $109.9 billion.
Net revenues excluding traffic acquisition costs (the portion of revenues shared with Google’s partners and the amount paid to distribution partners and others who direct traffic to Google’s website) came in at $94.67 billion, topping the Zacks Consensus Estimate of $92.22 billion by 2.7%. Strength across Search and a sharp acceleration in Google Cloud, alongside rising AI-driven subscription adoption, stood out this quarter. A key theme in management’s commentary was the company’s “full stack” AI approach, spanning custom silicon, infrastructure and first-party models.
GOOGL’s Services Ride on Search & YouTube
Google Services revenues increased 16% year over year to $89.64 billion, supported by broad-based advertising and subscription growth. Search & other revenues rose 19.1% year over year to $60.4 billion, with management citing AI experiences as a catalyst for higher usage and queries at an all-time high. Google advertising revenues increased 15.5% year over year to $77.25 billion and accounted for 70.3% of total revenues.
Within advertising, YouTube ads grew 10.7% to $9.88 billion, while Google Network revenues declined 4% to $6.97 billion. Subscriptions, Platforms and Devices revenues climbed 19.3% year over year to $12.38 billion, reflecting continued momentum in YouTube subscriptions and Google One, including increased demand for consumer AI plans.
Other Bets’ revenues were $411 million, down 8.7% year over year, and accounted for 0.4% of first-quarter revenues.
Google Cloud Benefits From Enterprise Adoption
Google Cloud revenues surged 63% year over year to $20 billion and accounted for 18.2% of the quarter’s total revenues.
Management attributed the acceleration to strong performance across Google Cloud Platform, enterprise AI solutions, enterprise AI infrastructure and core services such as cybersecurity and data analytics. The quarter also featured a sharp step-up in contracted demand, with Cloud backlog reaching roughly $462 billion at quarter end.
In Google Cloud, management noted that TPU hardware agreements are included in the reported backlog, though the majority remains typical GCP contracts, with just over half of the backlog expected to be recognized as revenues over the next 24 months.
GOOGL’s Operating Margin Expands Y/Y
Alphabet posted operating income of $39.7 billion, up 29.7% year over year, with operating margin expanding 220 basis points to 36.1%. The company’s cost structure reflected heavier investment, as total costs and expenses increased 18% year over year to $70.2 billion, including a 26% jump in research and development spending.
Segment-wise, Google Services’ operating margin of 45.3% expanded 300 bps year over year.
Google Cloud delivered standout execution and profitability improved meaningfully, as Cloud operating income climbed to $6.6 billion and operating margin expanded to 32.9%, up from 17.8% a year earlier.
Other Bets reported a loss of $2.1 billion compared with $1.23 billion in the year-ago quarter.
Alphabet’s Balance Sheet Remains Strong
As of March 31, 2026, cash, cash equivalents, and marketable securities were $126.84 billion compared with $126.843 billion reported on Dec. 31, 2025.
Long-term debt was $77.501 billion as of March 31, 2026, compared with $46.547 billion as of Dec. 31, 2025.
The quarter’s operating cash flow reached $45.8 billion, but capital intensity remained elevated, with capital expenditures totaling $35.7 billion, largely directed to technical infrastructure to support AI opportunities.
Free cash flow was $10.1 billion in the reported quarter. The board also approved a 5% increase in the quarterly dividend to 22 cents per share.
Alphabet Raises Capital Expenditure
For 2026, Alphabet now expects to spend capital expenditures between $180 billion and $190 billion (up from previous guidance of $175 billion and $185 billion), reflecting heightened demand for AI compute and incremental investment tied to the Wiz acquisition.
The company also said it expects a low single-digit percentage point headwind to Cloud operating margin for the remainder of 2026 related to the Wiz acquisition, which closed in March and will be reported in the Google Cloud segment.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a upward trend in estimates review.
VGM Scores
Currently, Alphabet has a nice Growth Score of B, a score with the same score on the momentum front. However, the stock was allocated a score of D on the value side, putting it in the bottom 40% for value investors.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Interestingly, Alphabet has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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This article originally published on Zacks Investment Research (zacks.com).