Alphabet GOOGL reported second-quarter 2026 earnings of $9.11 per share, comfortably beating the Zacks Consensus Estimate of $2.88 per share and significantly higher than $2.31 per share reported in the year-ago quarter. The sharp increase primarily reflected unrealized gains in the company’s equity securities portfolio.
Consolidated revenues jumped 24% year over year to $119.80 billion. Net revenues, excluding traffic acquisition costs, increased 26.8% year over year to $103.62 billion, surpassing the Zacks Consensus Estimate by 2.31%. Google Cloud’s 82% year-over-year growth and $514 billion backlog were key highlights in the reported quarter.
Alphabet Inc. Price, Consensus and EPS Surprise
Alphabet Inc. price-consensus-eps-surprise-chart | Alphabet Inc. Quote
GOOGL’s Services Benefit From Search Growth
Google Services revenues increased 15% year over year to $94.54 billion. Segment operating income rose 20% to $39.54 billion, while the operating margin expanded to 41.8% from 40.1% reported in the year-ago quarter.
Google Search & other revenues climbed 17% year over year to $63.27 billion, with retail and finance making the largest contributions. Alphabet stated that AI-powered Search experiences continued to drive query growth. AI Mode surpassed one billion monthly active users after its global expansion.
YouTube advertising revenues advanced 13% to $11.06 billion, supported by direct-response and brand advertising. More than 1.7 billion unique viewers watched World Cup-related videos on YouTube, providing an additional boost to advertising demand.
Alphabet’s Cloud Business Accelerates Sharply
Google Cloud revenues hit $24.77 billion. The strong year-over-year growth was driven by Google Cloud Platform, enterprise AI solutions, AI infrastructure and core services. The company also began recognizing revenues from TPU system sales to customer data centers.
Cloud operating income more than tripled to $8.81 billion from $2.83 billion reported in the year-ago quarter. The segment’s operating margin expanded to 35.6% from 20.7%, reflecting strong revenue growth and improved operating leverage.
Cloud backlog reached $514 billion, increasing by more than $50 billion sequentially. Alphabet expects to recognize slightly more than half of this backlog as revenues over the next 24 months. Nearly 90% of Fortune 100 companies now use Gemini Enterprise.
Alphabet’s AI Adoption Supports Core Businesses
Gemini model APIs processed roughly 22 billion tokens per minute, up from more than 16 billion in the previous quarter. More than 9 million developers used Alphabet’s models each month, while nearly 500 Cloud customers processed more than one trillion tokens each over the past year.
The Gemini app reached 950 million monthly active users, with daily active users tripling year over year. Alphabet also reported strong adoption of Gemini-powered advertising tools, including AI Max and Performance Max.
Advertisers using these AI-powered campaigns generated an average of 15% more conversions or conversion value on Search at a similar return on advertising spending. Management remained encouraged by monetization on queries featuring AI Overviews and continued testing new ad formats within AI Mode.
GOOGL’s Operating Margin Expands Despite Rising Costs
Alphabet’s operating income increased 30.4% year over year to $40.77 billion. The consolidated operating margin expanded 160 basis points to 34%, as revenue growth exceeded the increase in total costs and expenses.
Total costs and expenses rose 21% year over year to $79.03 billion. Research and development expenses increased 32% year over year to $18.22 billion, driven by AI-related hiring, compensation and depreciation. Sales and marketing expenses grew 18% year over year to $8.40 billion, while general and administrative expenses advanced 24% to $6.46 billion.
Other income totaled $97.98 billion compared with $2.66 billion a year earlier. The increase mainly reflected unrealized gains on equity securities and was the primary factor behind the outsized increase in net income and earnings per share.
GOOGL’s Cash Flow Faces Heavy Infrastructure Spending
Alphabet ended the second quarter of 2026 with $242.47 billion in cash, cash equivalents and marketable securities, while long-term debt stood at $98.17 billion.
Operating cash flow totaled $39.07 billion, up from $27.75 billion in the year-ago quarter. Capital expenditures doubled to $44.92 billion, with most spending directed toward servers, data centers and networking infrastructure for AI.
The elevated investment resulted in negative free cash flow of $5.86 billion. Trailing 12-month free cash flow was $53.27 billion.
Alphabet Raises Its 2026 Capital Spending View
Alphabet raised its 2026 capital expenditure guidance to $195-$205 billion from $180-$190 billion. The increase reflects accelerated capacity deployment to meet demand for AI infrastructure and Cloud services.
Management expects capital expenditures to increase significantly again in 2027. Higher depreciation, data-center operating costs and energy expenses are expected to pressure profitability, while third-party capacity usage could create modest near-term pressure on Cloud margins.
Zacks Rank & Upcoming Earnings to Watch
Alphabet currently sports a Zacks Rank #1 (Strong Buy).
Some other top-ranked stocks in the broader Zacks Computer and Technology sector that are set to report their quarterly results are Amphenol APH, Bandwidth BAND and Fortinet FTNT. Amphenol, Bandwidth and Fortinet sport a Zacks Rank #1 each at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Amphenol, Bandwidth and Fortinet are set to report their second-quarter 2026 results on July 29. Year to date, shares of Amphenol, Bandwidth and Fortinet have returned 16.6%, 316.7% and 95.3%, respectively.
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