Alphabet Q1 Earnings Call Highlights

Key Points

• AI investments are the primary growth engine—Alphabet said Search & Other revenue rose 19%, consumer paid AI plans hit a record quarter, paid subscriptions reached 350 million, and Gemini adoption surged across consumer and enterprise use cases.
• Google Cloud accelerated sharply, with revenue up 63% to ~$20 billion, Cloud operating income tripling to $6.6 billion (margin 32.9%), and Cloud backlog nearly doubling sequentially to $462 billion, of which just over 50% is expected to convert to revenue in the next 24 months.
• Alphabet delivered strong quarterly results—consolidated revenue of $109.9 billion (up 22%) and net income of $62.6 billion (up 81%)—while raising 2026 CapEx guidance to $180–190 billion due to unprecedented AI compute demand and boosting the quarterly dividend by 5%.

Alphabet NASDAQ: GOOG executives emphasized strong first-quarter 2026 growth across Search, Cloud, and subscriptions, pointing to rising demand for AI-driven products and infrastructure as a key driver of both revenue expansion and higher capital spending. Management also highlighted accelerating enterprise adoption of Google’s AI stack, growing engagement with AI-powered Search features, and continued momentum in YouTube viewing and subscriptions.

AI seen as core driver across Search, Cloud, and subscriptions

CEO Sundar Pichai said Alphabet’s “AI investments and full-stack approach are driving performance across our business,” citing 19% revenue growth in Search and Other and faster growth in Google Cloud. Pichai said Search usage is increasing, with “queries at an all-time high,” and attributed that momentum to features such as AI Mode and AI Overviews.

Pichai also pointed to rapid growth in paid AI offerings. He said the company had its “strongest quarter ever for our consumer AI plans,” driven primarily by adoption of the Gemini app. Paid subscriptions across the company reached 350 million, with YouTube and Google One as “key drivers,” he said.

On the developer and enterprise side, Pichai said Alphabet’s first-party models processed more than 16 billion tokens per minute via direct API use, up from 10 billion the prior quarter. He also highlighted Gemini Enterprise momentum, noting 40% quarter-over-quarter growth in paid monthly active users.

Google Cloud growth accelerates; backlog nearly doubles sequentially

Pichai said Google Cloud “accelerated again this quarter due to strong demand for our AI products and infrastructure,” with revenue up 63% and exceeding $20 billion “for the first time.” CFO Anat Ashkenazi later said Google Cloud revenue totaled $20 billion, while Cloud operating income was $6.6 billion, tripling year-over-year, with operating margin increasing to 32.9% from 17.8% in the prior-year quarter.

A major focal point was Cloud backlog. Pichai said the backlog “nearly doubled quarter-on-quarter to over $460 billion.” Ashkenazi quantified backlog at $462 billion at quarter-end, adding that the increase was driven by “strong demand for enterprise AI offerings and the inclusion of TPU hardware sales.” She said Alphabet expects to recognize “just over 50% of the backlog as revenue over the next 24 months.”

Pichai also described strong deal activity, saying Google signed multiple $1 billion-plus deals and doubled the number of $100 million to $1 billion deals year-over-year. He added that new customer acquisition doubled compared to the same period last year, and that customers exceeded initial commitments by 45%.

At Cloud Next, Pichai said Google introduced a “Gemini Enterprise agent platform” for building and governing agents, along with new capabilities in the Gemini Enterprise app. He also highlighted data and security offerings, including a newly introduced “agentic Data Cloud.”

TPUs, infrastructure investments, and supply constraints remain in focus

Pichai devoted substantial attention to AI infrastructure, discussing TPUs, Axion CPUs, and NVIDIA GPUs. He said Google will be “among the first to offer NVIDIA Vera Rubin NVL 72” in addition to existing instances. He also detailed new 8th-generation TPUs introduced at Cloud Next, describing TPU 8t for training and TPU 8i for inference.

In Q&A, management repeatedly addressed compute constraints and capital allocation. Pichai told analysts the company uses a “robust ROIC framework” and long-range planning to allocate compute among internal needs such as frontier model training and products like Search and YouTube, alongside external Cloud demand. He said Alphabet is “compute-constrained in the near term,” adding that Cloud revenue “would have been higher if we were able to meet the demand.”

Ashkenazi updated capital spending expectations, raising full-year 2026 CapEx guidance to $180 billion to $190 billion from $175 billion to $185 billion to include investment tied to the Intersect acquisition, which she said closed in March. She added that Alphabet expects 2027 CapEx to “significantly increase compared to 2026,” citing “unprecedented internal and external demand for AI compute resources.”

Ashkenazi also provided details on Q1 spending: CapEx was $35.7 billion, with the “overwhelming majority” for technical infrastructure. She said about 60% of technical infrastructure investment was in servers and 40% in data centers and networking equipment.

Alphabet also outlined plans to begin delivering TPUs to select customers for use in their own data centers. Pichai described it as an “opportunistic” approach within the broader Google Cloud strategy, including customers in capital markets and “in certain cases, frontier AI labs.” Ashkenazi said a “small %” of revenue from these agreements is expected later in 2026, with “the vast majority” in 2027, and noted that TPU hardware sales will fluctuate depending on shipment timing.

Search advertising and agentic commerce initiatives

SVP and Chief Business Officer Philipp Schindler said Google Services revenue was $90 billion in the quarter, up 16%, driven primarily by Search. He said Search and Other delivered 19% growth, “primarily driven by retail and finance,” and added that health was also a major contributor during Q&A.

Schindler said Google is deploying Gemini across Ads infrastructure to improve:

• Ads quality, including relevance improvements in Discover and Maps; Schindler said this work improved ads relevance by “nearly 10%.”
• Advertiser tools, such as AI Max, which he said moved out of beta with improved targeting and creative capabilities.
• Monetization of new AI Search experiences, including testing “direct offers in AI Mode” and new ad formats for retail queries.

Schindler said more than 30% of customer Search spend now uses AI-enabled campaigns, AI Max, or Performance Max, and those advertisers are seeing more conversions for the same spend.

Asked about ad coverage, Schindler referenced the historical level of ads on roughly 20% of queries and said he believes “there is upside in that coverage number,” citing improved intent understanding with Gemini that enables monetization of “longer, more complex searches.”

He also discussed the Universal Commerce Protocol (UCP), an open standard launched in January, and said new members of the UCP Tech Council include Amazon, Meta, Microsoft, Salesforce, and Stripe. Schindler described UCP as enabling agentic commerce workflows across discovery, purchase, and post-purchase support, including checkout experiences within AI Mode, Search, and the Gemini app.

Financial results: revenue, margins, cash flow, and dividend increase

Ashkenazi reported consolidated revenue of $109.9 billion, up 22% (or 19% in constant currency). Operating income increased 30% to $39.7 billion, and operating margin was 36.1%.

Net income rose 81% to $62.6 billion, and earnings per share increased 82% to $5.11. Ashkenazi attributed the increase in other income and expenses to unrealized gains in Alphabet’s non-marketable equity securities portfolio.

Alphabet generated operating cash flow of $45.8 billion in Q1 and reported free cash flow of $10.1 billion. The company ended the quarter with $126.8 billion in cash and marketable securities and $77.5 billion in long-term debt. Ashkenazi also said the board declared a 5% increase in the quarterly dividend.

By segment, Ashkenazi said Google Services revenue rose 16% to $89.6 billion, with Search and other advertising revenue up 19% to $60.4 billion. YouTube advertising revenue increased 11% to $9.9 billion, while Network advertising declined 4% to $7 billion. Subscription platforms and devices revenue grew 19% to $12.4 billion, driven by YouTube subscriptions (including Music and Premium) and Google One subscriptions, which she said benefited from “increased demand for AI plans.”

Other Bets posted revenue of $411 million and an operating loss of $2.1 billion. Ashkenazi said Verily completed an external capital raise leading to its deconsolidation in Q1, while GFiber announced plans to combine with Astound Broadband, expected to result in deconsolidation when the deal closes in Q4.

Looking ahead to Q2, Ashkenazi said Alphabet expects an FX tailwind of about 1 percentage point to consolidated revenue at current spot rates, compared with a 3-percentage-point tailwind in Q1. She also said Wiz, acquired in March, will be reported in the Google Cloud segment and is expected to create a “low single-digit percentage point headwind” to Cloud operating margin for the remainder of 2026.

About Alphabet NASDAQ: GOOG

Alphabet Inc NASDAQ: GOOG is a multinational technology holding company headquartered in Mountain View, California. Formed in 2015 through a corporate restructuring of Google, Alphabet serves as the parent to Google LLC and a portfolio of businesses collectively known as "Other Bets." Google was originally founded in 1998 by Larry Page and Sergey Brin; Alphabet is led by CEO Sundar Pichai, who oversees Google and the broader company while the founders remain prominent shareholders and influential figures in the company's history.

Alphabet's core business centers on internet search and advertising, with Google Search and the company's ad platforms (including Google Ads and AdSense) generating the majority of revenue by connecting advertisers with consumers worldwide.

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