Alphabet Q3 Earnings: Cloud Up 103%, Capital Spending More Than Doubles
Alphabet’s Q3 2026 earnings, released on October 28, show revenue of $127,577 million, up 25% from $102,346 million a year earlier, and operating income of $40,576 million, up 30% against a prior-year quarter that carried a $3.5 billion charge for the European Commission’s advertising technology fine. Diluted earnings per share went the other way, falling 26% to $2.12 from $2.87. By late morning on Thursday the Class A shares were down 11.57% on the Nasdaq.
Further down the statements, operating cash flow fell about 13% year over year, from $48,414 million to $42,290 million. Most of that is a legal payment rather than the business: $5.2 billion of fine and interest in the separate Android antitrust case, previously accrued, was paid in cash in July, inside the quarter. The change that is structural sits a line below, where capital spending more than doubled and free cash flow was negative for a second quarter running.
| Three months ended September 30, US$ millions except per share | Q3 2026 | Q3 2025 |
|---|---|---|
| Revenue | $127,577 | $102,346 |
| Operating income | $40,576 | $31,228 |
| Google Cloud revenue | $30,709 | $15,157 |
| Diluted earnings per share | $2.12 | $2.87 |
| Operating cash flow | $42,290 | $48,414 |
| Capital expenditure | $51,355 | $23,953 |
Source: Alphabet Announces Third Quarter 2026 Results.
Two antitrust fines, each landing on a different statement
The $5.2 billion paid in July belongs to the Android case, where the 2018 European Commission decision became final this quarter. The 10-Q records that “the court-imposed fine and interest of $5.2 billion, which was previously accrued, was paid in July 2026.” Previously accrued means no expense reached this quarter’s income statement, so the whole payment lands in cash, through accrued liabilities.
The $3.5 billion is a different proceeding and it behaved in the opposite way. It was charged against the advertising technology decision of September 2025, and the filing is explicit about what followed: “We recognized a charge of $3.5 billion in the third quarter of 2025, and we placed bank guarantees in the fourth quarter of 2025 in lieu of cash payment.” That fine hit earnings and has not been paid in cash at all. Alphabet appealed in November 2025 and the appeal remains pending.
So two separate European antitrust proceedings distort the two year-over-year comparisons in opposite directions. The advertising technology charge held down the prior-year operating income base, which flatters this quarter’s reported 30% growth. The Android payment holds down this quarter’s operating cash flow, which fell $6,124 million year over year. The Android fine is $5,200 million of that, and on our arithmetic the decline without it is nearer 2% than 13%. Over nine months, operating cash flow rose, from $112,311 million to $127,149 million.
The $21,211 million swing in changes to assets and liabilities, our addition of the company’s own lines, runs the same way. Accrued expenses and other liabilities moved by negative $9,246 million, which is where the Android payment sits. Other assets moved by negative $7,040 million. Inventory is third, at negative $2,694 million, and it went from $2,439 million on the balance sheet at the end of 2025 to $13,308 million at September 30.
Capital spending is the change that is structural
Neither fine reaches it. Purchases of property and equipment were $51,355 million against $23,953 million, more than double, so free cash flow, which Alphabet defines as operating cash flow less capex, was negative $9,065 million after negative $5,855 million in the second quarter. Free cash flow is not a line on any financial statement, and our guide to reading financial statements shows where its two inputs sit. The statements themselves stayed positive: operating cash flow was $42,290 million and the net change in cash for the quarter was positive $423 million.
Alphabet’s quarterly operating cash flow against its capital expenditure, in millions of US dollars, with free cash flow beneath each quarter. Source: Alphabet third quarter 2026 earnings release, “Reconciliation from GAAP Net Cash Provided by Operating Activities to Non-GAAP Free Cash Flow”.
Cloud doubled, and some of what it sold was hardware
Google Cloud revenue of $30,709 million was up 103%, a record, and Cloud operating income reached $11,121 million against $3,594 million. The release names part of what is inside that: “TPU systems sales were also a meaningful contributor to revenue growth.”
The 10-Q is specific about what that means. Cloud revenue includes “Product sales, primarily the sale of TPU systems”, and the filing attributes part of the rise in cost of revenues to “inventory and related costs associated with the consumer devices and TPU systems hardware we sell”. That is the business behind the inventory build. Elsewhere, Google Search and other brought in $63,350 million, up 12%, on 8% more paid clicks at a 4% higher cost per click.
Operating margin was 31.8%, and the 30% rise in operating income deserves its asterisk. The 10-Q attributes a $2.1 billion decrease in expenses related to legal and other matters “largely reflecting the effect of a $3.5 billion EC fine accrued in the third quarter of 2025”, which is the advertising technology charge above. Add the full $3.5 billion back to the prior-year operating income of $31,228 million and growth is nearer 17% on our arithmetic.
The earnings shortfall sits mostly outside the operating business
Net income available to common stockholders fell to $26,170 million from $34,979 million, after $298 million of preferred dividends. “Other income (expense), net” went from positive $12,759 million to negative $8,221 million, and inside it the “Gain (loss) on equity securities, net” line moved from positive $10,734 million to negative $8,664 million.
Alphabet quantifies the effect. The net loss on equity securities “decreased the provision for income tax, net income, and diluted net income per common share by $1.9 billion, $6.7 billion, and $0.55, respectively.” That is a mark to market on the investment portfolio rather than anything that happened in advertising or cloud, and a giveback against nine-month other income of positive $127,478 million.
Analyst consensus for the quarter was $3.01 of diluted EPS, on Yahoo Finance analyst estimates, the one figure here that is not first-hand. Add the $0.55 back to the reported $2.12 and the result is $2.67, still $0.34 under it. The mark to market accounts for roughly three-fifths of the $0.89 gap, and the rest of other income and expense also weakened, by $1,582 million before tax.
The commitments sit in the MD&A, not on the balance sheet
What has been spent is in the cash flow statement. What has been signed for is in the MD&A of the Form 10-Q, among commitments “that are not reflected on our balance sheet, subject to counterparties performing on their obligations.”
Material purchase commitments total $924.4 billion, “of which $802.1 billion relates to multi-year commitments for technical infrastructure and inventory, energy take-or-pay contracts, and content licenses”, with the significant majority to be fulfilled through 2031 and the remainder mostly open purchase orders. Beyond those sit $130.5 billion of payments on leases not yet commenced, “primarily related to data centers and energy infrastructure”, starting between 2026 and 2031.
It is a ceiling rather than a bill, and the filing says so: “The amounts disclosed above reflect pricing and volumes at the maximum contractual limits of the current contracts.” Some agreements carry variable pricing between minimum and maximum rates, and in some cases the ability to partially reduce committed volumes.
The number with a date on it is the one to hold. Of the $924.4 billion, “$213.4 billion is due within 12 months”, against $265.1 billion of cash, cash equivalents and marketable securities. Alphabet’s own conclusion is in the same document: it expects existing cash, equivalents and short-term marketable securities “and cash flows from operations and financing activities to continue to be sufficient to fund our operating activities and cash commitments for investing and financing activities for at least the next 12 months, and thereafter for the foreseeable future.”
None of that is in the headline numbers, which is the point. It is in the MD&A and the notes, where our guide to reading an annual report sends readers who want the obligations a company has signed as well as the ones it has paid.
Capital is flowing in rather than out
In the first nine months of 2025, Alphabet repurchased $39,810 million of its own stock. In the same period of 2026, in the 10-Q’s words, “there were no repurchases of the company’s Class A or Class C shares.” That was a choice rather than an exhausted facility: the board authorised a $70.0 billion repurchase program in April 2025, and $69.5 billion of it remained available at September 30.
Instead the company raised. Nine months brought $42,870 million of common stock issued net of costs, $19,063 million from mandatory convertible preferred, and $85,222 million of debt issuance net of issuance costs against $8,879 million of repayments. Long-term debt stood at $125,102 million against $46,547 million at the end of 2025.
Capital returned to shareholders against capital raised, first nine months of each year, in millions of US dollars. Share repurchases were zero in the 2026 period, and debt is shown net of repayments. Source: Alphabet third quarter 2026 earnings release, consolidated statements of cash flows.
Note 11 fills in how. A June 4 public offering of Class A and Class C shares raised $20.5 billion net, and a concurrent private placement of 14 million Class A and 14 million Class C shares with an affiliate of Berkshire Hathaway Inc. added $10.0 billion, for “general corporate purposes, including capital expenditures to scale AI infrastructure and global compute.” The third quarter added $28.7 billion from senior unsecured notes, and an at-the-market program has placed $12.4 billion of stock, which the note says is primarily intended to meet tax obligations on employee equity grants. The quarterly dividend was $0.22 per share, up from $0.21 a year earlier.
The market treated this as company-specific
| Oct 28 close | Oct 29, 11:36 ET | Change | |
|---|---|---|---|
| GOOGL (Class A, Nasdaq) | 324.89 | 287.31 | -11.57% |
| GOOG (Class C, Nasdaq) | 321.89 | 285.23 | -11.39% |
| GOOG CDR (TSX, CAD) | 51.14 | 45.30 | -11.42% |
| Nasdaq Composite | 26,549.85 | 26,254.74 | -1.11% |
| S&P 500 | 7,743.98 | 7,725.17 | -0.24% |
| S&P/TSX Composite | 36,265.10 | 36,274.46 | +0.03% |
Alphabet fell about 11.5% in Thursday trading while the Nasdaq Composite fell 1.11% and the S&P 500 fell 0.24%. On those numbers the market repriced the company rather than reading the quarter across to AI capital spending generally, which is the distinction that matters to a Canadian holding US index exposure. The S&P/TSX Composite sat close to unchanged.
What a Canadian holder saw
There is a TSX-listed way to own this, and it did its job. The Alphabet CDR, which trades under GOOG in Canadian dollars and tracks the Class C share on the Nasdaq at a ratio of 0.11305322 on CIBC’s CDR directory data, fell 11.42% against the underlying share’s 11.39%.
The check is ours. The underlying share at US$285.23, times that ratio, times the Bank of Canada’s October 28 USDCAD rate of 1.4036, gives C$45.26 against the CDR’s actual C$45.30. The currency was taken out, which is what the “CAD Hedged” in the name promises. A Canadian holding the Nasdaq share directly would have had the US dollar’s move on top.
That hedge is not free. Our own measurement across 90 Canadian depositary receipts puts the drag at a median 2.12% a year over each series’ full life. Most of that is covered-interest carry, the cost of holding a hedged US asset in Canadian dollars at all, and it applies equally to a CAD-hedged ETF. It is a property of hedging rather than a charge laid on top.
Data as of October 29, 2026, 11:36 a.m. ET. The Thursday figures above are live intraday bars on an open session, not closing prices.
Disclaimer: The content on bestcanadianstocks.ca is for informational and entertainment purposes only and does not constitute financial advice. Past performance is not indicative of future results. Always consult a qualified financial advisor before making investment decisions. Every Alphabet figure is first-hand. Income statement, segment, balance sheet and cash flow figures are from ‘Alphabet Announces Third Quarter 2026 Results’, Exhibit 99.1 to the Form 8-K filed 2026-10-28, accession 0001652044-26-000080. Commitments, the share repurchase disclosure, the liquidity sufficiency statement, the EC fine attribution, paid clicks and cost-per-click, the TPU systems passages and Note 11 are from the Form 10-Q for the quarter ended 2026-09-30, filed 2026-10-29, accession 0001652044-26-000084. The release is HTML and carries no page numbers, so it is cited by its own visible table labels. Analyst consensus of $3.01 is Yahoo Finance analyst estimates and is the only figure in the piece that is not first-hand; it is credited in plain text and not linked. Market prices are live intraday bars read at 11:36 ET on 2026-10-29, with October 28 closes read from the dated daily bar. The USDCAD rate of 1.4036 is the Bank of Canada’s October 28 reading. The working capital sums, the ex-fine operating income growth, the operating cash flow decline, the OI&E deterioration, the ATM total and the CDR hedge check are our own arithmetic and are labelled as ours.
