Source: Alphabet Investor Relations (abc.xyz) Q1 2026 Earnings Call transcript PDF; call held April 29, 2026 at 1:30pm PT. Participants: Sundar Pichai (CEO), Philipp Schindler (SVP/CBO), Anat Ashkenazi (SVP/CFO), Jim Friedland (IR).
Jim Friedland, Head of IR: Welcome, everyone, and thank you for standing by for the Alphabet First Quarter 2026 Earnings Conference Call. With us today are Sundar Pichai, Philipp Schindler and Anat Ashkenazi. 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.
Sundar Pichai, CEO: Thanks, Jim. Hi, everyone, and thanks for joining us today. It was a terrific quarter for Alphabet. It's clear that our AI investments and full stack approach are driving performance across our business.
In Search & Other, revenue grew 19%. 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 over quarter to over $460 billion. Gemini Enterprise is seeing tremendous momentum, with 40% growth quarter over quarter in paid monthly active users. Overall, the number of paid subscriptions has now reached 350 million, with YouTube and Google One being the key drivers.
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. Our custom TPUs, Axion CPUs, and the latest NVIDIA GPUs continue to form the industry's widest variety of compute options. At Cloud Next, we introduced our eighth generation TPUs, individually specialized for training and serving — TPU 8i delivers cost-effective, low-latency inference with 80% better performance per dollar than the prior generation.
Gemini 3.1 Pro continues to push the frontier in reasoning, multimodal understanding and cost. We launched Gemma 4, our most intelligent open model, downloaded over 50 million times in just a few weeks. Our engineers are now orchestrating fully autonomous digital task forces.
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. 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. And since upgrading AI Overviews and AI Mode to Gemini 3, we have reduced the cost of core AI responses by more than 30%.
Now, over to Google Cloud. Our Enterprise AI solutions have become our primary growth driver for Cloud for the first time. In Q1, revenue from products built on our gen AI 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 billion dollar plus deals. In Q1, Gemini Enterprise paid monthly active users grew 40% quarter over quarter. Customers outpaced their initial commitments by 45%, accelerating over last quarter. We saw 9x year over year growth both in seats sold with partners, and in the number of partners adopting it for internal use.
The performance of Wiz so far has exceeded our expectations. We introduced new Gemini powered agents for threat detection, continuous red teaming, and automated remediation.
Turning to YouTube. In the Living Room, U.S. viewers are watching over 200 million hours of YouTube content daily. Moving to Other Bets — Waymo is on a great trajectory. It launched in Nashville a few weeks ago, making six new cities so far in 2026, with operations in eleven major U.S. cities in total. Waymo also surpassed 500,000 fully autonomous rides per week, doubling in less than a year.
Philipp Schindler, SVP and CBO: As usual, I'll start with the performance of Google Services, then cover 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. Search and Other delivered 19% growth, primarily driven by Retail and Finance. Network advertising revenues were down 4% year on year. Search and Other revenues delivered $60 billion in revenue for the quarter.
We launched AI Max to help advertisers adapt to this new way of searching, and earlier this month it moved out of beta, with improved performance quality across targeting and creative capabilities. Take Hilton EMEA — they captured one third more clicks for a fifth of the spend, while simultaneously increasing the average booking value by 55%. We are also monetizing new AI user experiences in Search — Gap, L'Oréal and Chewy are just some of the latest partners to sign up to test this Google Ads pilot.
YouTube has now led streaming watch time in the U.S. for three consecutive years. This quarter Kingfisher, Target and Wayfair closed significant multiyear Cloud and Ads deals.
Anat Ashkenazi, SVP and CFO: I will start with results at the Alphabet level, and will then cover our segment results. 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. Operating income increased 30% to $39.7 billion, and operating margin was 36.1%. Other income and expenses was $37.7 billion, primarily due to unrealized gains in our nonmarketable 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 12 months. CapEx was $35.7 billion in the first quarter, with the overwhelming majority of this spend in technical infrastructure — approximately 60% in servers and 40% 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 Search and other advertising revenues increased by 19% to $60.4 billion, driven by growth in the retail and financial services verticals. Network advertising revenues of $7 billion were down 4%. Google Services operating income increased 24% to $40.6 billion, and 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. 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. Cloud operating income was $6.6 billion, tripling year over year, and operating margin increased from 17.8% in Q1 of last year to 32.9%. Google Cloud's backlog nearly doubled sequentially, reaching $462 billion at the end of the first quarter, driven by strong demand for our enterprise AI offerings and the inclusion of TPU hardware sales.
In Other Bets, revenues were $411 million and operating loss was $2.1 billion. Verily completed an external capital raise resulting in its deconsolidation from Alphabet. GFiber announced plans to combine with Astound Broadband, which will result in its deconsolidation when the deal closes (expected Q4).
Turning to our outlook. We would expect to see an FX tailwind of approximately one percentage point toward consolidated revenue in Q2, compared to three percentage points FX tailwind in the first quarter. We are updating our full year 2026 CapEx guidance range to $180 to $190 billion, up from our previous estimate of $175 to $185 billion, to now include investment related to the acquisition of Intersect, which closed in March. We expect our 2027 CapEx to significantly increase compared to 2026. We expect to begin recognizing a small percent of the revenues from the TPU agreements later this year, with the vast majority of revenues to be realized in 2027.
Operator: [Q&A — selected]
Brian Nowak (Morgan Stanley): What areas of Search are you most excited about applying next generation compute toward? And how do you think about pricing TPU sales?
Sundar Pichai: We are taking advantage of all our investments in Gemini models, applying them in Search and the Gemini app, driving innovations in AI Overviews and AI Mode. On TPUs, we take a ROIC approach; at times it is direct sales of TPU hardware to a select group of customers. Some of it helps us get more economies of scale in our overall compute environment, which we need for next-generation investment.
Doug Anmuth (JPMorgan): On 2027 CapEx, and room to increase ads coverage beyond the 20% historically?
Anat Ashkenazi: As we see robust demand across the business, we are looking at increasing CapEx to meet that demand. We'll provide more clarity on that number in a future earnings call.
Philipp Schindler: AI Overviews and AI Mode continue to drive greater Search usage and growth in overall queries, including commercial queries. With AI's ability to better understand intent, I think there is upside in that 20% coverage number.
Eric Sheridan (Goldman Sachs): On AI infrastructure positioning and UCP for agentic commerce?
Sundar Pichai: The fact that we own frontier models and own the silicon helps us stay ahead of the curve, plus deep investment in our security layers. Our ability to invest in this moment and stay at the frontier puts us in a strong position.
Philipp Schindler: We're in the early stages of the agentic era. The universal commerce protocol (UCP) is a new open standard for agentic commerce, co-developed with industry leaders including Shopify, Etsy and Walmart.
Ron Josey (Citi): What's driving Cloud margin expansion?
Anat Ashkenazi: It's the topline growth Google Cloud is producing, as well as an incredibly efficient way of running the business — from very efficient technical infrastructure to leveraging AI across our business. We're not going to stop; we'll continue to push for more efficiency knowing we have the headwind of depreciation from higher CapEx.
Ken Gawrelski (Wells Fargo): Are you factoring supply chain price inflation into '26/'27 CapEx?
Sundar Pichai: We're working through a complicated supply chain environment and factoring that into any commentary. Our supply chain partners see the strength of our diversified businesses, and our frontier technology helps us get into deeper partnerships all across the supply chain.
Justin Post (BofA): How should we think about TPU sales and the backlog growth?
Anat Ashkenazi: We see tremendous interest and demand for both AI solutions and AI infrastructure, including GPUs and TPUs. Just over half of the total backlog will convert to revenue in the next 24 months. For TPU hardware sales specifically, we expect a small percent to come through as revenue later this year, with the majority realized in 2027.
Operator: Thank you, everyone. This concludes today's conference call.