Haverhill Financial Research · Analysis · Big Tech · October 23, 2026
The short version
Alphabet reports third-quarter results after the close on October 28. Its second quarter was its strongest in years on growth: revenue rose 24% to $119.8 billion and operating income rose 30% to $40.8 billion. Google Cloud led, with revenue up 82%. The cost showed up in the cash flow statement. Capital spending doubled, free cash flow turned negative, buybacks stopped, and Alphabet raised roughly $70 billion through new equity and bonds.
Second quarter, $ billions. Source: Alphabet Q2 2026 earnings release.
Cloud has turned into a profit engine
Google Cloud revenue reached $24.8 billion, up from $13.6 billion a year earlier. Its operating income more than tripled to $8.8 billion, a margin of about 36%. A year ago Cloud was a fast-growing but small contributor; now it earns more than a fifth of Alphabet's operating income. Search grew 17% to $63.3 billion and YouTube ads grew 13% to $11.1 billion, so the older businesses are still growing, just more slowly.
| Measure | Q2 2026 | Q2 2025 | Change |
|---|---|---|---|
| Total revenue | $119,796M | $96,428M | +24% |
| Google Cloud revenue | $24,768M | $13,624M | +82% |
| Google Cloud operating income | $8,814M | $2,826M | +212% |
| Capital expenditures | $44,924M | $22,446M | +100% |
| Share repurchasesNone in Q2 2026 | $0 | $13,238M | — |
| Diluted EPSIncludes a $99.0B equity gain | $9.11 | $2.31 | +294% |
The bill for AI
Capital spending was $44.9 billion in the quarter, double the $22.4 billion of a year earlier, and free cash flow was negative $5.9 billion. Alphabet bought back no stock, after spending $13.2 billion on buybacks in the same quarter last year. To fund the build-out it raised $49.6 billion in net equity and issued $20.3 billion of notes. For a company that has long funded everything from its own cash flow and returned the rest, that is a significant change in approach.
Reported earnings per share of $9.11 include a $99.0 billion gain on equity securities, which Alphabet says added $6.26 a share. Without it, earnings per share would have been about $2.85, up roughly 23% from $2.31. That is a strong result in its own right, but it is the figure to compare with next quarter, not $9.11.
What to watch on October 28
Cloud margin. Whether operating margin stays in the mid-30s as more capacity comes online.
Capital spending and free cash flow. Another negative quarter would make the funding question more pressing.
Buybacks. Any sign they resume, or any further equity or debt issuance.
Search growth. Last quarter's 17% is the base for judging whether AI features are helping or hurting the core business.
Our take
Alphabet has shown that its cloud business can grow fast and earn a good margin at the same time, which was the main doubt about it a year ago. What has changed is the balance sheet story. Issuing equity to fund capital spending dilutes existing holders, and it only pays off if the new capacity earns returns like the current Cloud business does. We would focus on Cloud operating income and free cash flow on October 28 more than on headline earnings.
Sources and disclosures
Figures come from Alphabet's Q2 2026 earnings release, filed with the SEC on July 22, 2026. Cloud margin, earnings per share excluding the equity gain and percentage changes are our calculations.
Disclosures. Haverhill Financial Research is a publisher of general financial commentary. This article is not personalized investment advice and does not consider any reader's financial situation; readers should do their own research. Nothing here is a recommendation to buy or sell any security. Company figures and guidance can change. The author of this post does not hold positions in Alphabet or the other companies named. Data as of October 23, 2026.
