EARNINGS REVIEW
Alphabet, 2026 Q2 Earnings Results
Google Cloud’s strong growth and margin improvement complemented solid Search growth. However, large investment valuation gains increased net income, and cash investment exceeded OCF, making it necessary to distinguish core growth from financing.
Assessment · Cloud revenue and margins demonstrate growth quality, but valuation and financing effects account for much of the increase in net income and cash. The pace at which increased investment translates into greater cash generation will be central to assessing future earnings quality.
Key management and company statements
Earnings release · Excerpt from the original“Our AI investments are redefining what’s possible across every part of our business.”Meaning · AI investment is changing what is possible across the business.
Context · Cloud revenue and operating income growth provide the financial basis for this statement. Company-wide net income also includes separate investment valuation gains.
Original statement ↗01 Revenue, operating income and results versus expectations
Year over year · revenue 96.428 → 119.796 B$ (+24.2% · +23.368 B$), operating income 31.271 → 40.770 B$ (+30.4% · +9.499 B$).
Quarter over quarter · revenue 109.896 → 119.796 B$ (+9.0% · +9.900 B$), operating income 39.696 → 40.770 B$ (+2.7% · +1.074 B$), operating margin 36.1% → 34.0% (−2.1%p).
Cloud revenue increased by 11.144 B$ year over year, and operating income rose from 2.826 → 8.814 B$. Cloud operating margin rose from 20.7% → 35.6%. Within Services, Search revenue increased from 54.190 → 63.271 B$ and YouTube advertising from 9.796 → 11.055 B$. The difference between summed segment revenue and consolidated revenue reflects consolidation adjustments and other items.
02 Earnings sustainability · From operating income to net income
Non-operating other income of 97.983 B$ arose mainly from unrealized gains on equity investments. It would be inappropriate to use consolidated net income of 112.193 B$ directly as a measure of sustainable operating earnings power.
Net income attributable to common shareholders after preferred dividends was 112.107 B$. This report uses consolidated net income as the starting point for the cash flow bridge, without mixing different earnings scopes.
- Operating income
- 40.770 B$
- Net non-operating income
- 97.983 B$
- Income tax expense
- −26.560 B$
- Consolidated net income
- 112.193 B$
Net income of 112.193 B$ in the existing quarterly dataset is on a consolidated basis.
03 Cash flow quality · Net income → OCF → FCF
OCF of 39.069 B$ was much lower than net income. Noncash adjustments for investment valuation gains and other items created that gap; FCF is negative after cash CapEx of 44.924 B$ is deducted. Appreciation in investment assets must be distinguished from cash received from customers.
- Consolidated net income
- 112.193 B$
- Total net adjustments for noncash items, working capital and other items¹
- −73.124 B$
- Operating cash flow
- 39.069 B$
- Cash CapEx
- −44.924 B$
- FCF
- −5.855 B$
¹ Total net adjustments calculated as OCF−net income. This is not a single disclosed line item; it combines noncash items, working capital, classification differences and other adjustments.
FCF versus previous quarter · 10.116 → −5.855 B$, 15.971 B$ deterioration.
04 Financial capacity · Net debt and payment obligations
Previous-quarter net cash · 2026-03-31
Cash and current investments 126.840 / Debt 79.499 B$
Current-quarter net cash · 2026-06-30
Cash and current investments 242.474 / Debt 100.164 B$
Net cash increased by 94.969 B$ from the previous quarter. The carrying amount of current debt is 1.999 B$. It may differ from the principal maturity schedule.
The June 2026 issuance of common shares and mandatory convertible preferred shares raised net proceeds of approximately 49.6 B$. Not all of the increase in period-end liquidity came from operating performance.
No shares had actually been issued under the separate 40.0 B$ ATM issuance authorization by the end of June. Unused financing capacity should not be added to current cash.
Of purchase and other obligations of 811.0 B$, short-term obligations of 200.7 B$ were disclosed. These include contracts of various kinds, including infrastructure and inventory, so the entire amount should not be classified as additional cash CapEx.
Common definition · Cash and current investments = cash equivalents + current investments and deposits. Debt = carrying amount of interest-bearing borrowings (current + noncurrent), excluding separately reported lease liabilities. This differs from total liabilities of 281.503 B$. Restricted cash, noncurrent securities and noncurrent deposits are excluded from cash and current investments.
05 Investment, capital allocation and cash returns
Improved Cloud profitability signals that investment results are reaching the income statement. However, the timing of new orders and contracts differs from cash spending to expand supply capacity, so contract growth alone does not establish a near-term improvement in FCF.
This quarter, cash CapEx/revenue is 37.5% and FCF/revenue is −4.9%. These ratios should not be used as a simple ranking of companies with different business models and FCF definitions.
RPO / Backlog
QoQ 467.600 → 519.500 B$ (+11.1% · +51.900 B$).
Alphabet revenue backlog, mainly Google Cloud and distinct from the explicitly stated Cloud amount. Inclusion of contracts with terms of 1 year or less from 2026 creates a break in the time series · Contract balances are not equivalent to confirmed next-quarter revenue or cash inflows. RPO scope differs across companies.
RPO disclosure ↗Quarterly results · CY-aligned presentation
Amounts in B$. Based on the CY-aligned year of this report, the table shows all 4 quarters of the preceding year and the current year to date. Each fiscal quarter is assigned to the CY quarter with the greatest overlap in actual reporting dates, alongside its original FY/CY quarter and start/end dates. Amounts have not been recalculated into actual calendar quarters.
| CY alignment | 2025 · 4 quarters | 2026 · 2 quarters | Change this quarter | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Metric | 2025 total4-quarter totalBalances are period-end | 1Q2025 Q125-01-01 ~25-03-31 | 2Q2025 Q225-04-01 ~25-06-30 | 3Q2025 Q325-07-01 ~25-09-30 | 4Q2025 Q425-10-01 ~25-12-31 | 2026 year to date2-quarter totalBalances are period-end | 1Q2026 Q126-01-01 ~26-03-31 | 2Q2026 Q226-04-01 ~26-06-30 | QoQvs 2026 Q1 | YoYvs 2025 Q2 |
| Revenue | 402.836 | 90.234 | 96.428 | 102.346 | 113.828 | 229.692 | 109.896 | 119.796 | +9.0%+9.900 B$ | +24.2%+23.368 B$ |
| Operating income | 129.039 | 30.606 | 31.271 | 31.228 | 35.934 | 80.466 | 39.696 | 40.770 | +2.7%+1.074 B$ | +30.4%+9.499 B$ |
| Operating margin | 32.0% | 33.9% | 32.4% | 30.5% | 31.6% | 35.0% | 36.1% | 34.0% | −2.1%p | +1.6%p |
| FCF | 73.266 | 18.953 | 5.301 | 24.461 | 24.551 | 4.261 | 10.116 | −5.855 | −15.971 B$ | −11.156 B$ |
| Operating cash flow | 164.713 | 36.150 | 27.747 | 48.414 | 52.402 | 84.859 | 45.790 | 39.069 | −14.7%−6.721 B$ | +40.8%+11.322 B$ |
| Cash CapEx | 91.447 | 17.197 | 22.446 | 23.953 | 27.851 | 80.598 | 35.674 | 44.924 | +25.9%+9.250 B$ | +100.1%+22.478 B$ |
| Net cash | 78.300 | 80.942 | 67.541 | 71.894 | 78.300 | 142.310 | 47.341 | 142.310 | +94.969 B$ | +74.769 B$ |
| Cash and current investments | 126.843 | 95.328 | 95.148 | 98.496 | 126.843 | 242.474 | 126.840 | 242.474 | +91.2%+115.634 B$ | +154.8%+147.326 B$ |
| Debt | 48.543 | 14.386 | 27.607 | 26.602 | 48.543 | 100.164 | 79.499 | 100.164 | +26.0%+20.665 B$ | +262.8%+72.557 B$ |
Indented rows are components or reference items for the parent metric. Net cash = cash and current investments − debt. Depending on the company definition, FCF may include additional adjustments such as lease principal and therefore differ from operating cash flow − cash CapEx. See the cash flow discussion for the detailed definition.
Annual totals and year-to-date totals appear before each year’s quarters. Revenue, earnings and cash flow are sums of quarterly figures; margin is total operating income ÷ total revenue; net cash, cash and debt are balances at the end of the last quarter. Do not treat totals covering different lengths of time as directly comparable annual figures.
Net cash = cash and current investments − debt. A negative figure indicates net debt. Changes in FCF and net cash are shown as absolute amounts in B$. Quarterly figures have not been adjusted to force reconciliation with disclosed annual totals.
Comparison bases, calculation methods and quarterly sources
Calculation and presentation · Amounts in B$. Figures disclosed in millions of US dollars are divided by 1,000 without altering the source values. Where only cumulative cash flows are available, the previous cumulative period within the same fiscal year is deducted. YoY, QoQ and margins are calculated using amounts before display rounding. Earnings changes from negative or 0 bases are expressed as profit/loss transitions and absolute amounts.
Opinions and outlook · Management quotations include original excerpts and their translations. Quotations not identified as earnings-call transcripts come from earnings releases. Interpretations and implications are the author’s judgments. No numerical probability of achieving a target is assigned without quantitative verification.