Alphabet Inc. Q1 2026 earnings call

Thank you. Good afternoon, everyone, and welcome to Alphabet's First Quarter 2026 Earnings Conference Call. With us today are Sundar Pichai, Philipp Schindler, and Anat Ashkenazi. Now, I'll quickly cover the safe harbor. Some of the statements that we make today regarding our business, operations, and financial performance may be considered forward-looking. Such statements are based on current expectations and assumptions that are subject to a number of risks and uncertainties. Actual results could differ materially. Please refer to our forms 10-K and 10-Q, including the risk factors. We undertake no obligation to update any forward-looking statement. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release, which is distributed and available to the public through our investor relations website located at abc.xyz/investor.

Our comments will be on year-over-year comparisons unless we state otherwise. Now I'll turn the call over to Sundar.

Thanks, Jim. Hi, everyone, and thanks for joining us today. It was a terrific quarter for Alphabet. Our momentum was on full display at Cloud Next last week, and the month of May brings even more with I/O, Brandcast, and GML. I hope you'll tune in to see our progress. It's clear that our AI investments and full-stack approach are driving performance across our business. In Search and Other, revenue grew 19%. People love our AI experiences like AI Mode and AI Overviews, and they're coming back to Search more. Cloud accelerated again this quarter due to strong demand for our AI products and infrastructure. Revenue grew 63%, exceeding $20 billion for the first time, and our backlog nearly doubled quarter-on-quarter to over $460 billion.

Gemini Enterprise is seeing tremendous momentum with 40% growth quarter-over-quarter in paid monthly active users. In subscriptions, this was our strongest quarter ever for our consumer AI plans, primarily driven by adoption of the Gemini app. The number of paid subscriptions has now reached 350 million, with YouTube and Google One being the key drivers. Our AI models have great momentum. Our first-party models now process more than 16 billion tokens per minute via direct API use by our customers, up from 10 billion last quarter. Today, I'll share our progress across the AI full stack, then Search and Cloud, followed by YouTube and other bets. Starting with our AI infrastructure, it's the foundation of our full-stack approach to AI, driving customer growth and product adoption.

Our custom TPUs, Axion CPUs, and the latest NVIDIA GPUs continue to form the industry's widest variety of compute options. NVIDIA GPUs are a core part of our AI accelerator portfolio and will be among the first to offer NVIDIA Vera Rubin NVL 72 in addition to the Blackwell and Hopper-based instances already available. At Cloud Next, we introduced our 8th-gen TPUs, individually specialized for training and serving and able to take on the most demanding agentic workloads. TPU 8t provides high-performance model training with three times the processing power of Ironwood and two times the performance. TPU 8i delivers cost-effective, low-latency inference with 80% better performance per dollar than the prior generation. This exceptional infrastructure powers our world-class AI research. That includes models and tooling, which continue to progress really well. Gemini 3.1 Pro continues to push the frontier in reasoning, multimodal understanding, and cost.

We have quickly expanded the Gemini 3.1 series of models to offer more choices for developers, including our cost-efficient Flash models. 3.1 Flash Live, our latest audio model, has improved precision and reasoning, making voice interactions more natural and intuitive. It's now powering conversational features in Search and the Gemini app. Speech-to-text is now available in 70 languages. With 3.1 Pro, our deep research agent got a big upgrade, including MCP support and native visualizations. Our generative media models are incredibly popular. Lyria 3 has generated over 150 million songs since launching on the Gemini app. Nano Banana 2 reached 1 billion images in nearly half the time of Nano Banana 1. Veo 3.1 Lite is our most cost-efficient video model to date. On top of this, we launched Gemma 4, our most intelligent open model.

It's been downloaded over 50 million times in just a few weeks. In fact, our open models have now been downloaded over 500 million times. Looking ahead, we are focused on pushing the next frontiers of foundation models, including intelligence, agents, and agentic coding. We are using the latest technologies to transform how we work as a company. For example, with Antigravity, we are shifting to truly agentic workflows. Our engineers are now orchestrating fully autonomous digital task forces and building at a faster velocity. Much more to come here. Next, we are bringing helpful AI into the hands of billions of people every day through our products and platforms. Earlier this year, we introduced personal intelligence, which helps people get more personalized and helpful responses. It's now in the Gemini app, AI Mode, and Gemini in Chrome.

Early traction has been good, this month we integrated Nano Banana 2 to make personalized image creation possible in the Gemini app. Maps recently got its most significant upgrade in over a decade with Gemini. Users can now have a conversation with Maps and get more personalized suggestions and intuitive directions. The Pixel 10a launched to positive reviews, providing the best of Google's AI features like Gemini Live and AI-powered camera features. Turning to Search, AI continues to drive search usage and queries are at an all-time high. We continue to invest in improvements to AI Overviews, which are driving overall search growth, and we are also seeing strong growth in both users and usage of AI Mode globally. Personal intelligence expanded broadly in the U.S., and we are seeing people ask more personal questions and getting responses that are uniquely relevant to them.

We also shipped agentic experiences like restaurant booking to new countries and new multimodal capabilities like Search Live globally. We are also continuing to improve efficiency and speed. Even as we have brought new AI features into our results page, we have reduced search latency by more than 35% over the past five years. Since upgrading AI Overviews and AI Mode to Gemini 3, we have reduced the cost of core AI responses by more than 30%, thanks to continued hardware and engineering breakthroughs. We are excited to share more about search at I/O. Now over to Google Cloud. Google Cloud is differentiated because we are the only provider to offer first-party solutions across the entire enterprise AI stack. Our growth in revenue, operating margin, and backlog highlights this differentiation. Our enterprise AI solutions have become our primary growth driver for Cloud for the first time.

In Q1, revenue from products built on our GenAI models grew nearly 800% year-over-year. We are winning new customers faster with new customer acquisition doubling compared to the same period last year. We are seeing strong deal momentum, doubling the number of $100 million to $1 billion deals year-on-year and signing multiple $1 billion+ deals. We are deepening relationships with existing customers. Customers outpaced their initial commitments by 45%, accelerating over last quarter. At Cloud Next last week, we introduced hundreds of new capabilities across our vertically optimized AI stack that are designed to work together for our enterprise customers. We introduced a new Gemini Enterprise agent platform that empowers users to build, orchestrate, govern, and optimize agents with the controls that enterprise customers need.

Along with new capabilities in Gemini Enterprise app like Projects, Canvas, long-running agents and skills, every employee can build agents. In Q1, Gemini Enterprise paid monthly active users grew 40% quarter-over-quarter. That includes major global brands like Bosch, Citi Wealth, Merck, and Mars Incorporated. Our partner ecosystem plays an increasingly critical role in driving Gemini Enterprise adoption. We saw 9x year-over-year growth, both in seats sold with partners and in the number of partners adopting it for internal use. This momentum is leading to accelerating usage of our models. Over the past 12 months, 330 Google Cloud customers each processed over 1 trillion tokens. 35 reached the 10 trillion token milestone. To give agents business context from enterprise data to help them reason intelligently, we introduced a new agentic Data Cloud.

It includes across-cloud lakehouse, knowledge catalog, and deep research agents which combine research and analytical skills. As an example, using our Data Cloud, American Express is enabling agentic commerce at scale by moving an enterprise data platform along with hundreds of production applications to BigQuery. Vodafone is proactively resolving outages, automating network planning, and precisely targeting capacity. Enterprise data has become critical for agents to reason. Our strength with BigQuery and Gemini Enterprise has led Gemini-powered workflows in BigQuery to grow over 30x year-over-year. As cybersecurity threats from the use of AI models accelerate, our expertise in AI and cybersecurity is driving strong demand for our agentic defense offerings. In March, we closed the acquisition of Wiz, a leading cloud and security AI platform, which is an incredible fit for the moment we are in.

We have seen tremendous interest from customers in our unique cybersecurity and AI products and services to protect their IT estate. The performance of this so far has exceeded our expectations. Together with Google's threat intelligence, security operations, and AI models, Wiz is helping organizations detect, prevent, and respond to threats. We introduced new Gemini-powered agents for threat detection, continuous red teaming, and automated remediation to protect software code and cloud systems. Customers like Deloitte, Priceline, and Shell are using our agentic defense to strengthen their security posture. All of this is powered by the AI infrastructure I mentioned earlier. Our TPUs continue our leadership in performance, cost, and power efficiency for customers like Thinking Machines Lab, Hudson River Trading, and Boston Dynamics.

As TPU demand grows from AI labs, capital markets firms and high-performance computing applications will begin to deliver TPUs to a select group of customers in their own data centers in a hardware configuration to expand our addressable market opportunity. Turning to YouTube, where our momentum continues. In the living room, U.S. viewers are watching over 200 million hours of YouTube content daily. As of March, we have reached a new milestone with over 10 million channels now publishing Shorts each day. This level of daily activity is a testament to how people enjoy this content and how we have made it easier for creators. In Q1, our YouTube Music and Premium offering saw its largest quarterly increase in the total number of non-trial subscribers, both globally and in the U.S. since YouTube Premium launched in June 2018.

Thanks, Sundar, and hello, everyone. As usual, I start with the performance of Google Services and then cover the progress we're delivering across Search, YouTube and partnerships. Google Services revenues were $90 billion for the quarter, up 16% year-on-year, primarily driven by the continued growth of Search. Adding some further color to our results. Search and Other delivered 19% growth, primarily driven by retail and finance. YouTube advertising revenues grew 11%, driven by direct response followed by brand. Network advertising revenues were down 4% year-on-year. Starting with Search and Other revenues, which delivered $60 billion in revenue for the quarter. We're accelerating the deployment of Gemini across our entire Ads infrastructure to help businesses reach more customers in more places than ever before.

This is driving significant improvements across all areas of marketing and continues to fuel new performance breakthroughs across three areas critical for our customers' success: Ads quality, Advertiser tools, and new AI user experiences. First, Ads quality. AI is boosting our ability to deeply understand user intent for a given Search query and to find the most relevant ad. Even when we don't have a direct user query, we're making significant strides in improving relevance. In Discover, new AI models and classifiers are driving higher relevance by better aligning ads with unique user interests. In Maps, we're using Gemini to ensure promoted pins are deeply relevant to a user's surroundings, location of interest, history, and intent. This work is improving ads relevance by nearly 10%, leading to significant increase in user engagement. We're pairing the strength and prediction-driven relevance with bottom-of-funnel precision.

Over the past year, we've made over 20 improvements to Search and shopping bid strategies. Smart Bidding now uses Gemini to match user intent to an advertiser's product and services more accurately and further drive performance. This level of granularity was previously impossible to achieve at scale. Second, on advertiser tools, where Gemini helps advertisers drive more efficient and effective campaigns. People no longer search in fragments. They search conversationally and share more context. We launched AI Max to help advertisers adapt to this new way of searching. Earlier this month, it moved out of beta with improved performance quality across targeting and creative capabilities. Take Hilton EMEA. They captured 1/3 more clicks for 1/5 of the spend, while simultaneously increasing the average booking value by 55%.

Etsy saw a 10% search volume uplift, with 15% of those queries being net new to their business. We see significant opportunity as advertisers continue to make good progress on AI readiness and the adoption of AI tools. For instance, more than 30% of our customer Search spend now uses AI-enabled campaigns, AI Max, or Performance Max, and these advertisers are seeing more conversion for the same spend. Third, how we monetize new AI user experiences in Search. We aren't just bringing existing ad formats into AI experiences. We are reinventing ads for this new era. Direct offers in AI Mode are resonating with users and continue to receive positive customer feedback. Gap, L'Oréal, and Chewy are just some of the latest partners who have now signed up to test this Google Ads pilot. We're also exploring new formats for retailers.

AI Mode already surfaces organic product recommendations based on a user's query, and we're now testing a new ad format that displays retailers who sell those recommended products. In addition, the retail industry is rapidly coalescing around the open source Universal Commerce Protocol, or UCP, we launched in January in partnership with the ecosystem. Last week, we welcomed Amazon, Meta, Microsoft, Salesforce, and Stripe as new members to the UCP Tech Council. They join founding members Shopify, Etsy, Target, Wayfair, and Google to further accelerate the transition towards an agentic future. Partners like Sephora and Macy's have joined companies like Ulta Beauty, who are already rolling out UCP and can now redefine consumer journeys from discovery to checkout. Ulta Beauty just last week launched agentic commerce within AI Mode and Search and the Gemini app.

Shoppers can now review product recommendations, compare options, and complete streamlined checkout for eligible purchases directly within AI Mode and Gemini. Turning to YouTube, which now has led streaming watch time in the U.S. for three consecutive years. We're in an unmatched position to connect brands with the audiences they care about in the moment they engage in. We're applying Gemini to drive better matching and discovery between brands and creators of all sizes. Gemini now powers YouTube Creator Partnerships, a centralized platform integrated directly into YouTube Studio for creators and Google Ads for advertisers. We've also made it easier to buy premium ad space in top-tier podcast shows by curating the most watched podcasts into popular genres.

Supergoop! partnered with YouTube creator Liza Koshy on a multi-format Shorts and long-form CTV campaign, resulting in a 93% lift for their Glowscreen product and a 55% overall brand lift. Looking at monetization across YouTube, momentum continues in Shorts and the Living Room, and Demand Gen continues to drive momentum in direct response, in particular with smaller advertisers. Brand, too, is benefiting from growth in the Living Room, where we continue to scale creator brand deals. YouTube subscriptions revenue continues to grow faster than ads, particularly YouTube Music and Premium. By the end of Q1, YouTube Premium Lite was fully launched in 23 countries, and we plan to launch in more than a dozen new countries in Q2. I'll wrap with the progress we're seeing across partnerships. Retailers are increasingly looking to Google to support their AI transformation.

This quarter, Kingfisher, Target, and Wayfair closed significant multi-year cloud and ads deals. Combined with the implementation of UCP, these partnerships will help deliver personalized AI-driven agentic experiences from discovery to checkout. In closing, I'd like to thank Googlers everywhere for their contributions to our success and, as always, our customers and partners for their continued trust. Anat, over to you.

Thank you, Philipp. My comments will focus on year-over-year comparisons for the first quarter, unless I state otherwise. I will start with results at the Alphabet level and will then cover our segment results. I'll end with some commentary on our outlook for the second quarter and full-year 2026. We had an outstanding first quarter, delivering our 11th consecutive quarter of double-digit revenue growth. Consolidated revenue reached $109.9 billion, up 22% or 19% in constant currency. Total cost of revenue was $41.3 billion, up 14%. Tech was $15.2 billion, up 11%. Other cost of revenues was $26 billion, up 15%, primarily driven by increases in depreciation, content acquisition costs largely for YouTube, and compensation. Total operating expenses were up 24% to $28.9 billion.

R&D expenses increased by 26%, driven by compensation due to investment in AI talent as well as depreciation. Sales and marketing expenses were up 23%, driven primarily by marketing investments to support the Gemini app and Search, as well as compensation. G&A expenses increased 21%, primarily due to an increase in compensation and costs related to legal and other matters. Operating income increased 30% to $39.7 billion, and operating margin was 36.1%. Other income and expenses was $37.7 billion, representing a meaningful increase from the prior year, primarily due to unrealized gains in our non-marketable equity securities portfolio. Net income increased 81% to $62.6 billion, and earnings per share increased 82% to $5.11.

We generated operating cash flow of $45.8 billion in the first quarter and $174.4 billion for the trailing twelve months. CapEx was $35.7 billion in the first quarter, with the overwhelming majority of this spent in technical infrastructure to support the AI opportunities we see across the company. Approximately 60% of our investment in technical infrastructure this quarter was in servers, and 40% was in data centers and networking equipment. Free cash flow was $10.1 billion in the first quarter and $64.4 billion for the trailing 12 months. We ended the quarter with $126.8 billion in cash and marketable securities and $77.5 billion in long-term debt. As we announced today, our board of directors declared a 5% increase in the quarterly dividend.

Turning to segment results, Google services revenues increased 16% to $89.6 billion, reflecting strong growth in Search and subscriptions. Google services revenues also benefited from a strong FX tailwind. Google Search and other advertising revenues increased by 19% to $60.4 billion, driven by growth in the retail and financial services verticals. YouTube advertising revenues increased 11% to $9.9 billion, driven by direct response advertising as well as brand. Network advertising revenues of $7 billion were down 4%. Subscription platforms and devices revenues increased 19% this quarter to $12.4 billion due to strong growth in both YouTube subscriptions, particularly in YouTube Music and Premium, and Google One subscriptions, which benefited from increased demand for AI plans.

Google Services operating income increased 24% to $40.6 billion. Operating margin was 45.3%. The Google Cloud segment delivered outstanding results in the first quarter. Cloud revenues accelerated across all key areas and were up 63% to $20 billion. Revenue growth was driven by strong performance in GCP, which continued to grow at a rate that was much higher than Cloud's overall revenue growth rate. The largest contributor to Cloud's growth this quarter was AI solutions, driven by strong demand for industry-leading models, including Gemini 3. In addition, we had strong growth in AI infrastructure due to continued deployment of TPUs and GPUs, and core GCP continues to be a sizable contributor, driven by demand for infrastructure and other services such as cybersecurity and data analytics.

Workspace, again, delivers strong double-digit revenue growth, driven by an increase in the number of seats and the average revenue per seat. Cloud operating income was $6.6 billion, tripling year-over-year, and operating margin increased from 17.8% in the first quarter of last year to 32.9%. Google Cloud's backlog nearly doubled sequentially, reaching $462 billion at the end of the first quarter. The increase was driven by strong demand for enterprise AI offerings and the inclusion of TPU hardware sales that Sundar referenced earlier. The majority of the backlog is related to typical GCP contracts, and we expect to recognize just over 50% of the backlog as revenue over the next 24 months. In Other Bets, revenues were $411 million, and operating loss was $2.1 billion.

For the past few years, we have been working to prioritize our efforts and investments in the Other Bets. In Q1 of this year, Verily completed an external capital raise that resulted in its deconsolidation from Alphabet. GFiber announced plans to combine with Astound Broadband, which will result in its deconsolidation from Alphabet when the deal closes, which we expect to take place in Q4. We continue to allocate significant resources to businesses where we see meaningful opportunities to create value, such as Waymo. Turning to our outlook, I would like to provide some commentary on factors that will impact our business performance in the second quarter and full-year 2026. First, in terms of revenues, we're pleased with the overall momentum of the business.

At current spot rates, we would expect to see an FX tailwind of approximately 1 percentage point to our consolidated revenue in Q2 compared to a 3 percentage points FX tailwinds in the first quarter. In Google Cloud, as Sundar mentioned, we will begin to deliver TPU hardware to a select group of customers in their own data centers. We expect to begin recognizing a small percent of the revenues from these agreements later this year, with the vast majority of revenues to be realized in 2027. It is important to keep in mind that revenues from TPU hardware sales will fluctuate from quarter-to-quarter depending on when TPUs are shipped to customers. Finally, we're excited to welcome the Wiz team to Google Cloud with the closing of the acquisition in March and are very pleased with the performance to date.

A couple of items to highlight related to the acquisition. First, Wiz will be reported in the Google Cloud segment. Second, we expect a low single-digit percentage point headwind to Cloud's operating margin for the remainder of 2026 related to the acquisition. Moving to investment, we are updating our full-year 2026 CapEx guidance range to $180 billion-$190 billion, up from our previous estimate of $175 billion-$185 billion, to now include investment related to the acquisition of Intersect, which closed in March. We are seeing unprecedented internal and external demand for AI compute resources. The investments we are making in AI is delivering strong growth, as evidenced by the record revenue and backlog growth in Google Cloud and strong performance in Google Services.

Looking ahead, these strong results reinforce our conviction to invest the capital required to continue to capture the AI opportunity. As a result, we expect our 2027 CapEx to significantly increase compared to 2026. In terms of expenses, as we've discussed previously, the significant increase in our investment in technical infrastructure will continue to put pressure on the P&L in the form of higher depreciation expense and related data center operations costs, such as energy. We also expect to continue hiring in key investment areas such as AI and Cloud and are investing in marketing to support our AI products. To conclude, Q1 was an outstanding quarter for Alphabet, and our teams continue to execute with high level of discipline and velocity, delivering amazing innovation. We look forward to sharing more in the coming weeks at I/O, Google Marketing Live, and Brandcast.

I want to take this opportunity to thank our employees for their contributions to our performance. Sundar, Philipp, and I will now take your questions.