Alphabet's cloud revenue more than doubles as its AI chip business takes shape

Alphabet reported third-quarter revenue of $127.6 billion on Wednesday, a 25 percent increase from a year earlier, driven by a Google Cloud division whose sales more than doubled as the company began booking its first revenue from selling, rather than only renting, the specialized chips it uses to train and run artificial-intelligence systems.

The results, disclosed in a filing with the Securities and Exchange Commission for the quarter ended September 30, mark Alphabet's 13th consecutive quarter of double-digit revenue growth. Google Cloud revenue reached $30.7 billion, up 103 percent from $15.2 billion in the same quarter last year, with the company attributing the jump to enterprise demand for AI infrastructure and to sales of its custom Tensor Processing Unit, or TPU, hardware systems.

A profit figure distorted by investment swings

Net income available to common stockholders was $26.2 billion, or $2.12 a share, down from $2.87 a share in the third quarter of 2025. Alphabet said the decline was driven almost entirely by financial markets rather than its underlying business: an $8.7 billion net loss on the value of its equity securities holdings, largely paper losses on stakes the company holds in other companies, cut diluted earnings per share by 55 cents. Operating income, which strips out those investment swings, rose 30 percent to $40.6 billion, and Alphabet's operating margin widened to 31.8 percent.

Chief executive Sundar Pichai characterized the quarter in a statement included in the earnings release posted to Alphabet's investor relations site: "We had a strong quarter and are now on a half-trillion dollar revenue run rate."

"We had a strong quarter and are now on a half-trillion dollar revenue run rate." — Sundar Pichai, Alphabet chief executive

Google's core advertising business also held up despite warnings earlier in the AI boom that chatbots would siphon traffic away from traditional search. Google Services, which includes Search, YouTube and the Play app store, brought in $96.3 billion, up 11 percent. Search and other advertising revenue rose 12 percent to $63.4 billion, which Alphabet said reflected the fastest growth in search queries in five years, a sign that AI-generated summaries layered on top of search results have not, so far, driven users away. YouTube advertising revenue rose to roughly $11.2 billion, up from about $10.3 billion a year earlier.

Alphabet also disclosed that its first-party AI models, including its Gemini line, are now processing nearly 32 billion tokens per minute across its application programming interfaces, more than four times the rate of a year ago — a rough proxy for how much AI inference work is running on Google's infrastructure, whether for outside developers, Google's own products, or both.

Spending keeps climbing with the chip business

The acceleration in Cloud revenue did not come cheap. Alphabet spent $51.4 billion on property and equipment in the third quarter alone and $132.0 billion over the first nine months of 2026, pushing quarterly free cash flow to negative $9.1 billion even as the trailing-twelve-month figure held at a positive $19.7 billion. Headcount grew to 204,757 employees, up from 190,167 a year earlier, an increase of nearly 15,000 workers.

That spending pace builds on a trend that became visible earlier this year. On Alphabet's second-quarter call in July, chief financial officer Anat Ashkenazi disclosed that Google Cloud had begun recognizing revenue from TPU system sales for the first time. Analyst Larry Dignan of Constellation Research wrote at the time that the shift effectively turned Alphabet into an emerging seller of AI infrastructure hardware, positioning Google Cloud as a rival not just to Amazon Web Services and Microsoft Azure but, in a narrower sense, to Nvidia.

A capacity squeeze across the industry

Alphabet's buildout has run into the same bottleneck facing the rest of the industry: not enough data-center and chip capacity to meet AI demand. On the July call, Ashkenazi described a "supply-constrained environment," according to a report from the trade publication Futuriom. That quarter, Alphabet raised its full-year 2026 capital spending guidance to a range of $195 billion to $205 billion, up from $180 billion to $190 billion — the second upward revision of the year.

Wednesday's report did not include updated capital-spending guidance for the rest of the year; that detail typically follows in Alphabet's quarterly conference call and its Form 10-Q filing with the SEC in the days afterward. The pattern is now familiar across the largest cloud providers: Google Cloud, Microsoft's Azure and Amazon's AWS have each spent the past year raising capital-spending plans faster than Wall Street expected, betting that AI workloads will eventually generate returns commensurate with tens of billions of dollars a quarter in new data centers, networking gear and chips.

Who is watching, and what comes next

The results land in the middle of a closely watched earnings week for the technology industry's largest companies, several of which are making similarly large AI infrastructure bets. Microsoft was scheduled to report its own quarterly results after Wednesday's market close, with Amazon following on Thursday, and investors have been comparing each company's cloud growth and capital spending as a gauge of whether the broader AI buildout is translating into revenue or merely into cost.

Alphabet's stock had not yet resumed regular trading at the time of this report, since the earnings call was held after the Wednesday close; the market's verdict on the results, including whether investors focus on the Cloud acceleration or on the continued negative free cash flow, will register when trading opens Thursday.