GOOGL after its Q3 2026 call
Third-quarter sales matched our forecast, Q3-2026 sales, reported against our forecast: −0.1%; earnings per share fell short, Q3-2026 adjusted EPS, reported against our forecast: −9.3%, on chip hardware and depreciation costs. Since then earnings forecasts fell everywhere while 2027 and 2028 sales rose.
The call, in brief
Takeaways
Revenue rose 25% to $127.6B, the 13th straight quarter of double-digit growth.
Consolidated Alphabet revenues increased 25% to $127.6 billion, reflecting strong performance across the business and our 13th consecutive quarter of double-digit revenue growth.
Cloud revenue more than doubled, up 103% to $30.7B, a record growth rate for the business.
Google Cloud delivered record growth as revenues increased 103% to $30.7 billion
Google Services revenue rose 11% to $96.3B, with Search up 12% and search use growing at its fastest pace in five years.
Google Services revenues increased 11% to $96.3 billion, led by 12% growth in Google Search & other with the year-over-year Search query growth rate the highest it has been in the last five years.
Net income fell because other income swung to an $8.2B loss, mainly a paper loss on the SpaceX stake.
Other income and expenses was negative $8.2 billion, due primarily to an unrealized loss from our investment in SpaceX from a decline in its stock price in the third quarter.
Free cash flow was negative $9.1B as spending on buildings and equipment outran cash from operations.
We had negative free cash flow of $9.1 billion in the third quarter, driven by our investments in CapEx.
What management stressed
- New Gemini 4 models
Google announced Carbon, its strongest model yet, following Argon two weeks earlier.
Today we announced Carbon. It's our strongest frontier model with state-of-the-art cybersecurity and long-horizon capabilities.
- Ads in chat-style search
Google is taking ads in its chat-style search mode outside the United States for the first time.
Today, we're announcing the expansion of ads in AI mode into international markets alongside multi-trend ads in AI mode in the US.
- Cloud contract backlog
Signed cloud contracts not yet turned into revenue reached $561B, mostly ordinary cloud platform deals.
Google Cloud's backlog was $561 billion in the third quarter, with the majority of the backlog related to typical GCP contracts.
- Chip system sales ramp
Sales of Google's own computing chip systems should keep growing this quarter, with a big revenue jump expected in 2027.
In Google Cloud, we expect TPU system sales to continue to scale in Q4, followed by a meaningful revenue ramp in 2027.
- Heavy infrastructure spending
Spending on data centers and equipment reached $51.4B in the quarter, mostly to support artificial intelligence.
CapEx was $51.4 billion in the third quarter, with the vast majority of the spend in technical infrastructure to support our investments in AI.
- Returns on heavy investment
Management expects returns on its spending to stay well above its cost of capital, though free cash flow will be squeezed.
Throughout this investment cycle, we expect to generate an attractive ROIC that remains meaningfully above our cost of capital and anticipate generating strong cash flow from operations.
What analysts asked
- Search slowdown and outlook2 questions
Exchange rates were the biggest drag on search growth, along with industry-specific shifts and tougher comparisons with last year.
First, there was FX. It was the single largest driver of search deceleration relative to Q2.
- Bringing agents to consumers2 questions
Agents that act for users will widen what search does, can carry new ad formats, and Google's record on trust should set it apart.
So I think I'm excited about agents, and I would view it as a new frontier, which brings in a new set of use cases to search.
- Chip system sales economics2 questions
No margins given; inventory is built only after contracts are signed, cash returns on delivery, and more revenue arrives in 2027.
To date, we've had some system sales recorded as revenue, but expect more of it to come in through 2027.
- Sharing out scarce computing power1 question
Each business submits long-range plans judged on return on capital; it is long-term planning, not short-term rationing.
And so, you know, each of our business areas submit long-range plans with a very disciplined ROIC framework.
- Cloud growth without chip sales1 question
No figure given; growth excluding chip systems was again very strong, and more capacity would let Google serve more demand.
cloud revenue growth, excluding the impact of TPU system sales, was again very, very strong
Each line quotes the release or the call. The call's text is our machine transcription of the company's webcast.
What changed after the call
| Number | Before | After | Why |
|---|---|---|---|
| Q4 2026 sales | $142.7B | $142.6B−0.1% | Little moved: slower Search from lapping last year's acceleration offsets a bigger Cloud step from chip-system sales.In Google services, we will continue to lap the search performance acceleration that began in the third quarter last year, which will pressure revenue growth in Q4. |
| Q4 2026 adjusted EPS | $3.22 | $3.01−6.6% | Rented third-party computing capacity and lower-margin chip hardware now weigh on the fourth-quarter margin.We expect margin headwinds in the near term as we utilize this capacity. |
| Q1 2027 sales | — | $141.2B | New: the quarter after the next report. |
| Q1 2027 adjusted EPS | — | $2.94 | New: the quarter after the next report. |
| FY2026 sales | $500.0B | $499.8B−0.0% | Third-quarter sales landed where expected, leaving the year unchanged.Consolidated revenues were $127.6 billion, up 25% in both reported and constant currency. |
| FY2026 adjusted EPS | $11.76 | $11.29−4.0% | Third-quarter profit fell short as chip hardware costs and depreciation lifted the cost of revenues.Other cost of revenues was $35.1 billion, up 32%, driven by hardware costs primarily related to the sales of TPU systems, increasing depreciation, content acquisition costs, and technical infrastructure operations costs. |
| FY2027 sales | $607.5B | $620.9B+2.2% | The company confirmed a meaningful chip-system revenue ramp in 2027.In Google Cloud, we expect TPU system sales to continue to scale in Q4, followed by a meaningful revenue ramp in 2027. |
| FY2027 adjusted EPS | $13.53 | $12.76−5.7% | Models now carry heavier depreciation from the spending build and lower-margin hardware sales.the significant increase in our investment in technical infrastructure will continue to weigh on the P&L in the form of higher depreciation expenses |
| FY2028 sales | $713.1B | $742.9B+4.2% | A larger Cloud backlog, with just over half converting within two years, lifts later sales.Google Cloud's backlog was $561 billion in the third quarter, with the majority of the backlog related to typical GCP contracts. |
| FY2028 adjusted EPS | $15.84 | $15.06−5.0% | Spending set to rise significantly again in 2027 brings more depreciation into 2028.We continue to expect our CAPEX to increase significantly in 2027 |
Before is our forecast made before the release: the average of 6 models, cutoff 2026-10-27 03:39:04 ET. After is the average of the 6 new forecasts. Each why is the editor's line, with the quote that shows it.
FY2027 sales, each model
| Model | Before | After | Change |
|---|---|---|---|
| Opus 5.5 | $594.0B | $608.0B | +2.4% |
| GPT-6.1 Sol | $626.5B | $660.0B | +5.3% |
| GLM 5.3 | $611.0B | $620.0B | +1.5% |
| Kimi K3.1 Pro | $630.6B | $612.5B | −2.9% |
| Gemini 4 Argon | — | $633.0B | — |
| DeepSeek V4.1 Flash | $593.0B | $591.6B | −0.2% |
The outlook, rolled forward one quarter
The outlook page is written again from the new forecasts, with every part of the page before; it is also the next preview.
Our record
| Quarter | Our forecast | Outlook | Reported | Our miss |
|---|---|---|---|---|
| Q3 2026 sales | $127.6B | — | $127.6B | −0.1% |
| Q3 2026 adjusted EPS | $2.94 | — | $2.67 | −9.3% |
The forecast made before the release becomes one graded row: our miss is what was reported against our forecast, − when our forecast was too high. The record grows by one row a quarter.