Alphabet revenue rose 25% to $127.6 billion while net income fell 24%

By Jon Mc Gowan, The Filing Desk

Alphabet's revenue rose 24.7% to $127.6 billion in the third quarter of 2026, and operating income rose 29.9% to $40.6 billion. Net income fell 24.3% to $26.5 billion, because other income turned into a net expense. Capital spending of $51.4 billion was larger than operating cash flow of $42.3 billion.

Google Cloud revenue doubled and Search grew

Revenue grew by $25.2 billion from the third quarter of 2025. In its 10-Q, Alphabet attributes the increase primarily to Google Cloud, whose revenue rose $15.6 billion, or 103%, and to Google Services, whose revenue rose $9.3 billion, or 11%. The company said Cloud growth came largely from infrastructure and platform services, and from sales of its Tensor Processing Unit (TPU) systems. Google Search and other revenue rose $6.8 billion, which the company tied to more search queries, higher advertiser spending and improved ad formats.

Revenue growth was faster than in the quarter a year earlier, when it was 15.9%. Year to date, revenue was $357.3 billion, up 23.6% on the first nine months of 2025.

Operating income grew faster than revenue

Operating margin was 31.8%, up 1.3 points from 30.5% a year earlier. Cost of revenues grew 24.3% to $51.4 billion, slightly slower than revenue. The company said the rise came mainly from inventory and related costs tied to TPU system sales, depreciation, traffic acquisition costs and content costs for YouTube. Research and development spending rose 36.2% to $20.6 billion, mostly on employee compensation.

Last year's third quarter included a $3.5 billion European Commission fine in general and administrative expenses, which Alphabet cites as the main reason those expenses fell this year. Google Cloud's operating income rose $7.5 billion on higher revenue, partly offset by TPU inventory costs and infrastructure usage costs.

An investment loss pulled net income down

Below operating income, Alphabet reported other income and expense, net, of a $8.2 billion expense, against $12.8 billion of income in the third quarter of 2025. The 10-Q says the change of $21.0 billion was primarily net unrealized losses on marketable equity securities, largely SpaceX, and smaller unrealized gains on non-marketable equity securities. Income before taxes fell 26.4% to $32.4 billion. The effective tax rate was 18.2%, against 20.5% a year earlier. Diluted earnings per share were $2.12, down from $2.87.

Capital spending passed operating cash flow

Cash from operations fell 12.6% to $42.3 billion. Additions to property and equipment, which the company said mainly reflect technical infrastructure, more than doubled to $51.4 billion from $24.0 billion. Capital spending equaled 121% of operating cash flow. Free cash flow, which is operating cash flow minus that spending, was negative $9.1 billion for a second quarter in a row, after negative $5.9 billion in the second quarter and positive $24.5 billion a year earlier.

Total debt stood at $126.1 billion at September 30, 2026, up from $26.6 billion a year earlier. The company said it issued senior unsecured notes for net proceeds of $28.7 billion in the quarter for general corporate purposes. Cash and marketable securities were $265.1 billion.

Twelve quarters of figures