Alphabet Q3 Revenue Rises 25% as Cloud Doubles, Capex Weighs on Cash Flow

Alphabet reported a 25% year-over-year increase in third-quarter revenue to $127.58 billion, driven by a doubling of Google Cloud sales and continued growth in Search. Operating profit rose 30%, but sharply higher infrastructure spending pushed quarterly free cash flow below zero, while a swing to other expense reduced net income and diluted earnings per share.

Operating income reached $40.58 billion, compared with $31.23 billion a year earlier. Alphabet’s operating margin widened to 31.8% from 30.5%, as revenue grew faster than total costs and expenses, which increased 22% to $87.00 billion.

Net income available to common stockholders fell 25% to $26.17 billion, and diluted EPS declined 26% to $2.12. The decline came despite stronger operating results, as other income and expense moved to an $8.22 billion expense from $12.76 billion of income in the prior-year quarter. Income before taxes consequently dropped 26% to $32.36 billion.

Cloud revenue more than doubles

Google Cloud was the quarter’s largest growth contributor, with revenue rising 103% to $30.71 billion from $15.16 billion. Segment operating income climbed to $11.12 billion from $3.59 billion, while its operating margin expanded to 36.2% from 23.7%.

Alphabet highlighted its integrated cloud infrastructure, spanning custom tensor processing units, CPUs, storage, networking, liquid-cooled racks and software support for frameworks including JAX and PyTorch. The presentation positioned this full-stack approach as central to the company’s AI computing strategy.

Across Alphabet’s first-party models, including direct API use of Gemini, processing volume reached about 32 billion tokens per minute, up 40% sequentially. The Gemini app surpassed 1 billion monthly active users. The company also listed multiple model releases during the period, culminating in the Gemini 4 Argon and Carbon models, as evidence of its focus on accelerating AI product development and deployment.

Search supports Google Services growth

Google Services revenue increased 11% to $96.30 billion. Segment operating income rose to $39.16 billion from $33.53 billion, lifting its operating margin to 40.7% from 38.5%.

Google Search and other advertising revenue advanced 12% to $63.35 billion. The presentation also reported the fastest growth in Search queries in five years, although it did not disclose a query growth rate.

YouTube advertising revenue rose 9% to $11.21 billion, while Google Network revenue increased 1% to $7.46 billion. Revenue from subscriptions, platforms and devices grew 11% to $14.29 billion. YouTube Music and Premium had 150 million subscribers, including users on trials.

AI spending weighs on cash generation

Alphabet’s cost of revenue increased 24% to $51.42 billion. Research and development spending rose 36% to $20.64 billion, and sales and marketing expense increased 22% to $8.80 billion. General and administrative expense declined 17% to $6.14 billion.

Capital expenditures reached $51.36 billion, up 114% from $23.95 billion a year earlier, reflecting the scale of the company’s infrastructure investment. Net cash provided by operating activities was $42.29 billion, resulting in negative non-GAAP free cash flow of $9.07 billion after capital expenditures. In the prior-year quarter, free cash flow was positive at $24.46 billion.

For the trailing 12 months, operating cash flow totaled $179.55 billion and capital expenditures were $159.80 billion, leaving free cash flow of $19.75 billion. Alphabet defines free cash flow as operating cash flow less purchases of property and equipment.

The presentation emphasized continued AI innovation, model deployment and infrastructure integration but noted that forward-looking statements rely on current expectations and assumptions. Alphabet cautioned that actual results could differ materially because of risks and uncertainties described in its regulatory filings.

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