On October 28 Alphabet reported revenue of $127.6 billion (+25%) and a Google Cloud that more than doubled its sales (+103%, to $30.7 billion), with a $561 billion backlog. But $51.4 billion of capex left free cash flow at -$9.1 billion, and the stock fell about 10% after the close.
The Quarter's Numbers
According to the earnings summary published by Yahoo Finance and GuruFocus, and independent analysis from Senanni, Alphabet's revenue rose 25% to $127.6 billion and operating income rose 30% to $40.6 billion (a 31.8% margin). Google Cloud posted $30.7 billion in revenue with $11.1 billion of operating income: its margin went from 23.7% to 36.2% in a year.
The CFO said a little over 55% of the backlog will be recognized as revenue over the next 24 months. Nearly 100 customers use TPU systems, and the company expects more revenue from TPU system sales in 2027.
Why the Stock Fell Despite the Growth
Adjusted EPS was $2.12 against roughly $3.00 expected, but a large part of that gap comes from an unrealized accounting loss on its SpaceX stake (about $11 billion pre-tax, per Senanni). Excluding that item, Senanni estimates a shortfall of between 7% and 11%. Operating income also came in about $2 billion below consensus (FactSet), and Search revenue grew 12%, with lower monetization in AI Mode.
Senanni highlights another data point: free cash flow was negative for the second quarter in a row, trailing-twelve-month cash flow dropped from $73.5 billion to $19.7 billion (including a $5.2 billion European Commission fine), and Alphabet bought back no shares, compared with $11.5 billion a year earlier. The roughly 10% drop is an after-hours figure; we haven't yet found the regular-session close.
How This Works: High Backlog, Low Cash
The pattern matches Meta and Microsoft this earnings season: contracted compute demand is growing faster than the ability to pay for it from operating cash flow. Alphabet holds $265.1 billion in cash and investments and $125.1 billion in long-term debt, so it isn't in trouble, but the company said 2027 capex will be "significantly higher," which will raise depreciation and could pressure Cloud margins.
Sources: Yahoo Finance (Q3 2026 earnings call summary), GuruFocus, Senanni (Substack), Benzinga.