AI Engines Roar at Full Power, Alphabet Cloud Business Grows 63%, Stock Surges 7% After Hours.

TradingKey - After Wednesday's close ET, Google parent Alphabet ( GOOGL) ( GOOG) reported first-quarter 2026 earnings. Fully empowered by AI technology, growth accelerated across all business lines. Driven by a standout cloud performance, both revenue and earnings significantly beat market expectations, sending the stock up more than 7% in after-hours trading.

According to the report, Alphabet's total Q1 revenue reached $109.9 billion, up 22% year-over-year and marking the 11th consecutive quarter of double-digit growth. This surpassed the $107.1 billion consensus estimate from analysts surveyed by LSEG. Net income for the quarter surged 81% to $62.6 billion, while diluted earnings per share rose 82% to $5.11.

Notably, the results included approximately $36.9 billion in unrealized gains on non-marketable equity securities. Even excluding this non-recurring item, core operating profit still grew 30% year-over-year to $39.7 billion, while the operating margin expanded by 2 percentage points from a year ago to 36.1%, a significant improvement in profitability.

Alphabet CEO Sundar Pichai stated, "AI is lighting up every corner of the business."

Google Cloud Q1 results significantly beat expectations.

In the first quarter of 2026, Google Cloud delivered results that far exceeded Wall Street expectations, leveraging its AI-driven full-stack advantages as quarterly revenue surpassed $20 billion for the first time, representing a sharp 63% year-over-year increase and a significant acceleration from the prior-year period.

CEO Sundar Pichai emphasized during the earnings call that Google Cloud's differentiated competitiveness lies in its construction of a complete AI value chain—from proprietary chips to frontier models—making it the only provider globally capable of offering full-stack enterprise AI solutions.

This unique advantage directly drove a near-doubling of the cloud business backlog quarter-over-quarter to a record high of $460 billion, providing clear and robust support for future revenue growth.

In terms of profitability, Google Cloud's first-quarter operating profit reached $6.6 billion, up more than 200% from $2.2 billion in the same period last year, as economies of scale increasingly materialized.

Notably, Alphabet continues to ramp up its investment in AI research and development. In the first quarter, the company separately disclosed shared costs related to AI R&D, which totaled $5.4 billion, an increase of approximately 80% year-over-year.

As the core engine of the AI ecosystem, the processing capacity of the Gemini model series is also scaling rapidly; the number of tokens processed per minute via direct API calls has now exceeded 16 billion, a 60% increase from the previous quarter.

AI-Powered Search and Subscriptions

Alphabet's Google Services segment reported first-quarter revenue of $89.6 billion, a 16% year-over-year increase; operating profit rose 24% year-over-year to $40.6 billion, maintaining an overall trend of steady growth.

Search and related businesses performed impressively, with first-quarter revenue reaching $60.4 billion, a 19% year-over-year increase. CEO Sundar Pichai specifically noted that the deep integration of generative AI search experiences continues to drive user queries, which have now reached an all-time high.

The YouTube segment exhibited a dual-engine growth model driven by advertising and subscriptions, with advertising revenue increasing 11% year-over-year to $9.9 billion; subscriptions, platforms, and devices revenue grew 19% year-over-year to $12.4 billion, primarily fueled by consumer subscription products such as YouTube TV, YouTube Music, and Google One.

To date, Alphabet's total global paid subscribers have surpassed 350 million, with YouTube and Google One serving as the primary growth engines.

However, Google Network's advertising business saw a slight decline, with first-quarter revenue falling to $7 billion from $7.3 billion in the same period last year, making it the only sub-segment within Google Services to experience a year-over-year decrease in revenue.

In the field of innovative businesses, the autonomous driving subsidiary Waymo has made significant progress, now completing over 500,000 fully autonomous trips per week, a milestone Pichai highlighted in the earnings report.

Capital expenditure expansion

Alphabet significantly ramped up its expansion in AI infrastructure this quarter, with capital expenditures in the first quarter reaching $35.7 billion—approximately double the $17.2 billion recorded in the same period last year—primarily directed toward core computing infrastructure such as servers, data centers, and real estate.

During the earnings call, Pichai admitted that computing resources are currently facing short-term constraints; had all demand been met, cloud revenue could have achieved even higher growth, which indirectly validates the necessity of the company’s increased investment in computing power.

M&A activity was equally frequent, with net expenditures for acquisitions and intangible assets (after deducting cash acquired) totaling approximately $33.6 billion in the first quarter; the balance sheet shows goodwill rose from $33.4 billion at the start of the year to $57.8 billion, while net intangible assets jumped from $1.3 billion to $9.4 billion—and while specific transaction details were not disclosed, these figures indicate the completion of heavyweight acquisitions.

Notably, even amidst large-scale capital investment, Alphabet's cash flow from operating activities reached $45.8 billion in the first quarter, with free cash flow of approximately $10.1 billion, demonstrating a robust ability to support its operations through cash flow.

Based on the current pace of expansion, the company has raised its 2026 capital expenditure guidance range from the previous $175 billion–$185 billion to $180 billion–$190 billion; CFO Anat Ashkenazi also revealed that capital expenditures in 2027 are expected to increase "significantly" compared to 2026.