Alphabet Inc.

Alphabet reported Q2 2026 revenue of $119.8 billion, up 24% year over year, and 23% in constant currency. Operating income rose 30% to $40.8 billion, with operating margin at 34%; Google Services operating margin was 41.8%, and Google Cloud operating margin improved to 35.6%. Google Services revenue was $94.5 billion, up 15%, including Search and other advertising revenue of $63.3 billion (+17%) and YouTube advertising revenue of $11.1 billion (+13%); Google Cloud revenue was $24.8 billion, up 82%, and backlog reached $514 billion. Operating cash flow was $39.1 billion in the quarter, CapEx was $44.9 billion, free cash flow was negative $5.9 billion, and cash and marketable securities ended at $242.5 billion. For Q3, management expects a slight FX headwind to consolidated revenue, while Cloud should continue to grow strongly; for full-year 2026, CapEx is now expected to be $195 billion-$205 billion, up from $180 billion-$190 billion previously.

Sundar Pichai framed the quarter as early proof that Alphabet’s full-stack AI strategy is creating momentum across Search, YouTube, Cloud, and developer tools. He said the company is in the “early innings” of a major secular shift and sounded more bullish than a year ago on the return potential of AI investments. He also highlighted continued progress on Gemini models, broad adoption of Gemini Enterprise, and strong usage growth across consumer and enterprise products.

Anat Ashkenazi emphasized the scale of the quarter’s financial performance, but also the cost of ramping AI infrastructure. She cited revenue of $119.8 billion, operating income of $40.8 billion, operating cash flow of $39.1 billion, CapEx of $44.9 billion, and a year-end cash balance of $242.5 billion; she also noted that free cash flow was negative $5.9 billion in the quarter because of CapEx. She said the increase in 2026 CapEx to $195 billion-$205 billion reflects faster capacity delivery, and warned that depreciation, data center operating costs, and third-party capacity used as a bridge in Q3 will pressure margins near term.

Analysts pressed on whether AI returns are improving, whether Alphabet can stay at the model frontier, and how the company thinks about capital structure and future CapEx. Management said it is “more bullish” than a year ago on AI ROIC, arguing the opportunity is still early across consumer, enterprise, and developer use cases, and that model leadership will continue through Gemini 4 and faster release cadence. On funding, Ashkenazi said Alphabet first relies on operating cash flow, then debt, and uses equity sparingly to maintain a resilient balance sheet. They also addressed TPU demand and capacity constraints, explaining that some TPU sales revenue will mostly hit in 2027 and that third-party capacity is being used temporarily to support large customers.