Alphabet Inc. Q3 FY2026 earnings call

• AI Model Leadership: Launched Gemini 4 Argon and Carbon, with Carbon being the strongest frontier model. Gemini app reached 1 billion users. First-party model APIs process nearly 32 billion tokens per minute. Genie 4 world model announced for robotics training.
• Search & Ads Evolution: Query growth is at a 5-year high. AI Mode queries are 3x longer than traditional searches, with 50 billion visual searches monthly. Ads are being scaled into AI Overviews and AI Mode globally, including multiturn ads in the U.S., leveraging Universal Commerce Protocol (UCP) and Universal Cart.
• Cloud & Infrastructure Scale: Google Cloud has 18 product lines with >$1B annual revenue each. Nearly 90% of Fortune 100 use Gemini Enterprise. TPU systems (8t/8i) offer significant performance gains. Partnerships expanded with Oracle, Crux AI, Anthropic, Apple, and others for TPU deployment.
• YouTube Ecosystem: #1 streaming platform in the U.S. by watch time. Introduced custom feeds and sequential playback for Shorts. Amazon joined YouTube Shopping. Subscriptions (YouTube Music/Premium) growing faster than ad revenue, supporting creator ecosystem.
• Long-term Bets: Waymo expanded to 15 U.S. cities and new international markets. Isomorphic using AI for drug design. Quantum computing demonstrated magic state cultivation. Project Suncatcher launched TPUs into space.

• Google Services: Revenue increased 11% year-over-year to $96.3 billion, accounting for the majority of Alphabet's total revenue. Search and other advertising grew 12% to $63.3 billion; YouTube advertising grew 9% to $11.2 billion; Network advertising grew 1% to $7.5 billion; Subscription, platforms, and devices grew 11% to $14.3 billion. Operating income was $39.2 billion with a 40.7% margin.
• Google Cloud: Revenue surged 103% year-over-year to $30.7 billion, driven by strong growth in Google Cloud Platform (GCP) AI solutions and TPU system sales. Excluding TPU systems, core GCP growth remained very strong. Operating income more than tripled to $11.1 billion, with the operating margin expanding significantly from 23.7% to 36.2%. The segment holds a backlog of $561 billion.
• Other Bets: Revenue was $372 million, with an operating loss of $2 billion as investments continue in initiatives like Waymo.

• Q4 2026 Revenue: Management expects a slightly larger FX headwind compared to Q3. Search growth faces pressure from lapping the acceleration seen in late 2025. Cloud TPU sales will scale in Q4, with a meaningful revenue ramp expected in 2027.
• Cloud Margins: Expect near-term margin headwinds in Q4 due to ramping usage of third-party bridging capacity while internal supply remains constrained.
• CapEx: Full year 2026 guidance range of $195 billion to $205 billion remains unchanged. Significant CapEx increases are expected in 2027.
• Cash Flow: Free cash flow pressure expected due to heavy technical infrastructure investments and inventory buildup for TPU system sales.

• Financial Volatility: Unrealized losses on equity investments (e.g., SpaceX) negatively impacted net income and EPS.
• Margin Compression: Utilization of third-party compute capacity introduces margin headwinds despite long-term strategic necessity.
• Operational Costs: Rising depreciation, energy costs, and hardware expenses related to massive AI infrastructure buildout.
• Regulatory/Legal: Payment of a $5.2 billion EC fine and ongoing legal charges impact cash flow and expenses.
• Inventory Risk: Significant inventory buildup for TPU systems ties up cash until delivery and billing occur.

Q: Doug Anmuth asked about the 'golden age' of productivity in 2027 and the disconnect between record query growth and slower Search revenue. / A: Sundar Pichai explained that deploying Argon and Carbon models internally has created a step-change in software engineering productivity and innovation. Philipp Schindler attributed the deceleration primarily to FX headwinds, vertical-specific dynamics (retail/media), and lower monetization rates in early-stage AI Mode, which is now being scaled globally.