Google Parent Alphabet Announces $80 Billion Large-Scale Financing for AI Spending

By Chiba

Edited by Xu Qingyang

On April 29 US local time, Google parent Alphabet released its financial report for the first quarter of fiscal year 2026 after market close. Total revenue reached $109.9 billion, a 22% year-on-year increase. Non-GAAP net profit was $62.578 billion, up 81% year-on-year. Earnings per share (EPS) were $5.11, significantly higher than market expectations. Revenue expectations from different institutions were roughly in the range of $106.6 to $107.0 billion, with EPS expectations around $2.62 to $2.63. In after-hours trading, Alphabet's stock price rose nearly 7% at one point.

Judging from the financial figures and stock price reaction, investors are beginning to believe that Alphabet's "full-stack AI" route, which has been bet on for years and subjected to countless doubts, can transform from a grand narrative into quantifiable commercial returns.

01 63% Growth Rate Temporarily Quells Controversy

Google Cloud revenue reached $20.03 billion, a 63% year-on-year increase, exceeding analyst expectations of around $18 billion. The figure for the same period last year was only $12.26 billion. This growth rate not only far surpassed the already impressive 48% from the previous quarter but also achieved acceleration on a larger base, which is the real reason it exceeded Wall Street expectations.

Backlog orders nearly doubled quarter-on-quarter, reaching over $460 billion. The surge in backlog orders means future revenue has been locked in advance, ensuring sustainable growth.

At the same time, operating profit grew 30% year-on-year to $39.7 billion, and the operating margin expanded by about two percentage points year-on-year to 36.1%. Alphabet has proven that it can maintain and continue to expand profit margins while burning money on a large scale, which was also one of the core concerns of the market previously.

02 Search Is Not Dead, AI Is Expanding Its Territory

The old question surrounding Google Search: Will AI eat away at Google's most profitable business? At least in this quarter's financial report, this was strongly refuted.

Search advertising revenue reached $60.4 billion, a 19% year-on-year increase, with query volume hitting a record high. Alphabet and Google CEO Sundar Pichai pointed out in the financial report statement that this is a direct result of AI experiences continuously driving user habit changes. New features such as AI Overviews and AI Mode have not only failed to erode traditional search traffic but have further expanded the boundaries of the entire search market by providing richer answers. Pichai's consistent judgment previously was: AI is "expansive" for Google Search, not substitutive.

The number of Tokens processed per minute by the Gemini model via API exceeded 1.6 billion, a 60% increase from the previous quarter. More queries are triggering more complex model calls, and the computing cost per search is rising, indicating that AI features have not yet weakened the basic foundation of advertising monetization.

YouTube advertising revenue reached $9.88 billion, an 11% year-on-year increase, rebounding from the 9% growth rate in the previous quarter affected by US election consumption. This recovery met expectations but was slightly below the market estimate of $9.99 billion, making it one of the few slightly underwhelming parts of this report card. It is worth noting that YouTube's value is not limited to advertising; subscription revenue is becoming an increasingly important increment. This aligns highly with the overall trend of consumer AI monetization.

03 350 Million Paid Subscribers, Gemini Starts "Making Money"

Outside of cloud business, Alphabet has another easily overlooked growth clue this quarter. The financial report shows that Alphabet's paid subscriber base has reached approximately 350 million, covering Google One, YouTube, and other subscription services. Corresponding to the revenue side, Google Subscriptions, Platforms, and Devices business revenue for Q1 was $12.384 billion, a 19% year-on-year increase. This means AI is not just appearing in cloud and search, but is also being incorporated into Google's existing membership, storage, and content payment systems.

From a product form perspective, Gemini is the most important new variable in this subscription clue. Compared to selling a chatbot to users individually, Google prefers to embed AI capabilities into Google One, Workspace, Search, and mobile products, allowing users to gradually pay for AI capabilities in cloud storage, office work, content creation, and information retrieval. The financial report did not disclose Gemini consumer subscription revenue separately, but the 350 million paid subscribers provide Google with a huge conversion pool: as long as a portion of these users upgrade to higher-tier AI services, it could form new revenue increments.

On the enterprise side, Gemini Enterprise paid monthly active users grew 40% quarter-on-quarter. For Google, the significance of this metric lies in verifying that AI can become a new paid entry point outside of Google Cloud and Workspace.

This is also one of the most noteworthy changes in Alphabet's financial report this quarter: AI commercialization is no longer limited to two paths of "advertising efficiency improvement" or "cloud computing power demand growth," but is also entering the subscription revenue system. Search handles traffic, cloud handles computing power, and subscriptions package AI capabilities into continuously paid products. Compared to one-time model call revenue, the subscription model is more stable and easier to bundle with Google's original ecosystem.

At the same time, Google Cloud's security puzzle is being completed. On March 11, 2026, Google completed the acquisition of cloud security platform Wiz. This is one of the largest acquisitions in Alphabet's history. Wiz's value lies not only in the security product itself but also in its long-term service to multi-cloud environments, covering enterprise customers on platforms such as AWS, Azure, and Google Cloud. For Google, which is competing for AI cloud orders, security capabilities will directly affect whether enterprises are willing to migrate core data, model training, and agent workflows to its cloud platform.

However, Wiz's synergistic effects cannot be verified too early in this quarter. The financial report itself did not disclose Wiz's contribution to Google Cloud revenue and profit separately. Therefore, a more accurate statement is: Wiz has enhanced Google Cloud's security chips in the enterprise AI era, but whether it can translate into higher customer retention, cross-selling, and cloud market share still requires observation over the next few quarters.

04 A $175 Billion Gamble: The Race Between Spending and Returns

Besides the brightest parts of the report card, the unresolved big question always exists: Where is the endpoint of capital expenditures, and can the speed of returns really catch up with the speed of spending?

Pichai revealed in the previous quarter's earnings call that by 2026, this figure would reach $175 to $185 billion, nearly a six-fold increase over four years. He characterized it as a "ruthless innovation pace necessary to maintain AI competition." More than half of the machine learning computing power in 2026 will serve cloud business rather than internal consumption.

This quarter's operating margin expanded by two percentage points to 36.1% during a large-scale capital expenditure cycle, silencing critics who previously shouted about profit compression. But this is just the beginning; depreciation pressure will continue to intensify as infrastructure assets are completed one after another, and the profit statement in the second half of the year will be the real stress test.

The valuation currently given by the market has already implied optimistic expectations for high Cloud growth over the next few years. Once any quarter shows substantial deceleration in growth, the risk of repricing should not be underestimated.

Appendix: Alphabet Q1 2026 Earnings Call Analyst Conference Call Condensed Version

Alphabet CEO Pichai's Comments:

In the first quarter, Alphabet delivered its 11th consecutive quarter of double-digit revenue growth, with all core businesses performing beyond expectations. Google Cloud revenue broke the $20 billion mark, growing 63% year-on-year; search advertising revenue was $60.4 billion, up 19%, with query volume hitting a record high; subscribers broke 350 million, and Gemini Enterprise paid monthly active users grew 40% quarter-on-quarter.

The AI full-stack strategy was the core driver of this quarter's performance. At the infrastructure layer, the company launched the eighth-generation TPU, where TPU 8t training performance is three times that of the previous generation Ironwood, and TPU 8i inference cost-effectiveness improved by 80%. Gemini 3.1 Pro continues to push the boundaries of multimodal understanding and reasoning capabilities, with API Token processing volume reaching 1.6 billion per minute, a 60% increase from the previous quarter. The generative media model Lyria 3 has cumulatively generated over 150 million songs, and the Gemma 4 open-source model exceeded 50 million downloads within weeks of launch.

In terms of cloud business, enterprise AI solutions became the first driver of cloud growth for the first time, with product revenue based on the Gemini model growing nearly 800% year-on-year. New customer acquisition speed doubled year-on-year, the number of contracts between $100 million and $1 billion doubled year-on-year, and multiple contracts exceeding $1 billion were signed. The proportion of customers exceeding initial commitments reached 45%, accelerating quarter-on-quarter. Google Cloud backlog orders nearly doubled quarter-on-quarter to $462 billion, with over 50% expected to be recognized in the next 24 months.

In terms of search, AI Overviews and AI Mode continue to drive increased user usage frequency, with commercial query growth being particularly significant. The advertising placement tool AI Max completed public testing; Hilton acquired one-third more clicks with one-fifth of the budget through this tool, while the average booking amount increased by 55%. The Universal Commerce Protocol (UCP) open standard was joined by Amazon, Meta, Microsoft, Salesforce, and Stripe, advancing the construction of an agent-based shopping ecosystem.

Waymo has covered 11 major US cities this quarter, with weekly fully autonomous driving orders breaking 500,000, doubling in less than a year. Wing continues to expand and announced entry into the Bay Area. Verily has been spun off from Alphabet's consolidated financial statements after completing external financing, and the GFiber plan is expected to merge with Astound Broadband, completing in Q4.

Chief Financial Officer Ashkenazi Added:

The full-year capital expenditure guidance was raised from $175 to $185 billion to $180 to $190 billion, with the increment mainly coming from the acquisition of Intersect. Capital expenditures in 2027 are expected to increase significantly compared to 2026. This quarter's capital expenditures were $35.7 billion, of which about 60% was used for servers and 40% for data centers and network equipment. The company board also announced a 5% increase in quarterly dividends.

The following is the analyst Q&A session:

Q: The processing volume of 1.6 billion Tokens per minute for Gemini 3.1 Pro is astonishing. Does this mean inference costs are no longer a burden on profit margins?

Pichai: We are in an extremely favorable position on the efficiency curve. Over the past year, we have reduced the unit inference cost of the Gemini model by over 90%. This is thanks to a triad of optimizations: the hardware advantage of TPU 8i specifically designed for large-scale inference, sparse improvements in model architecture, and deep integration of the underlying software stack. Although absolute spending is increasing, the output efficiency per unit of intelligence is improving much faster than input growth, which gives us the confidence to fully implement AI Overviews in search.

Q: Regarding Google Cloud backlog orders (RPO) doubling quarter-on-quarter to $462 billion, can you break down its structure? How much comes from sovereign cloud or government orders?

Ashkenazi: The growth is very balanced, but the contribution of jumbo deals is significant. This quarter we signed three long-term contracts with single amounts exceeding $5 billion, covering telecommunications, financial services, and retail. Sovereign cloud demand is indeed surging, especially in Europe and the Middle East, where customers prefer to keep data locally while using Gemini for localized tuning. The profit margin for this segment is usually higher than public cloud because its service added value is higher.

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