YouTube Ad Revenue Rises 9% to $11.2 Billion in Q3 2026, Says Alphabet CFO

Alphabet reported 25% revenue growth in Q3 2026, driven by advertising and cloud computing. However, rising AI infrastructure spending pressured free cash flow and increased operating costs.

Alphabet Q3 2026 Results: YouTube Ad Revenue Rises 9% to $11.2 Billion

Alphabet reported a 25% year-on-year increase in consolidated revenue to $127.6 billion for the third quarter of 2026, supported by advertising growth and strong demand for cloud and artificial intelligence (AI) services. However, rising infrastructure investments and higher operating expenses affected cash flow and earnings.

YouTube Advertising Revenue Increases 9%

YouTube advertising revenue grew 9% year-on-year to $11.2 billion, according to Alphabet Chief Financial Officer Anat Ashkenazi. Brand advertising contributed the largest share of YouTube's advertising growth, with notable strength in living-room viewing.

Google Search and other advertising revenue increased 12% to $63.3 billion. Retail was the largest contributor to Search advertising growth, followed by the finance sector.

Overall, Alphabet's advertising revenue rose 11%, with growth across its major business categories.

Google Services Revenue Reaches $96.3 Billion

Google Services, which includes Search, YouTube, subscriptions and devices, generated $96.3 billion in revenue, marking an 11% annual increase.

Network advertising revenue rose 1% to $7.5 billion. Meanwhile, revenue from subscriptions, platforms and devices climbed 11% to $14.3 billion. Growth was supported by YouTube Music and Premium subscriptions, as well as increasing demand for AI plans offered through Google One.

Currency Fluctuations May Affect Q4 Growth

Alphabet expects foreign exchange movements to create a slightly greater headwind for consolidated revenue in the fourth quarter, based on prevailing exchange rates. Search and YouTube advertising are expected to experience much of this impact.

The company also faces a more challenging year-on-year comparison because Search growth accelerated during the third quarter of 2025.

Alphabet Operating Income Rises 30%

Alphabet's operating income increased 30% to $40.6 billion, while its operating margin reached 31.8%.

Operating expenses climbed 20% to $35.6 billion. Research and development costs increased 36%, primarily because of AI talent compensation and higher depreciation. Sales and marketing expenses rose 22%, reflecting investments in Gemini and related compensation costs.

General and administrative expenses declined 17%, largely due to a comparison with higher legal expenses in the previous year's quarter.

Alphabet recorded an $8.2 billion loss under other income and expenses, mainly because of an unrealised loss on its SpaceX investment following a decline in the company's stock price. This affected net income and earnings per share despite higher operating income.

AI Infrastructure Spending Reaches $51.4 Billion

Alphabet's capital expenditure totalled $51.4 billion in the September quarter, with most spending directed towards technical infrastructure supporting AI development.

Approximately 65% of technical infrastructure spending went towards servers and networking equipment, while the remaining 35% was allocated to data centres.

Operating cash flow reached $42.3 billion, but free cash flow turned negative at $9.1 billion. Cash generation was affected by infrastructure investments, inventory accumulation for Tensor Processing Unit (TPU) systems and a $5.2 billion payment connected to a 2018 European Commission fine after the appeals process concluded.

Alphabet Maintains 2026 Capex Guidance

Alphabet retained its full-year 2026 capital expenditure forecast of $195 billion to $205 billion. Ashkenazi indicated that capital spending would increase significantly in 2027, with additional details expected during the fourth-quarter earnings call.

The company also anticipates higher depreciation and data centre operating costs, including energy expenses, as infrastructure expands. These expenses could put further pressure on profitability and cash generation in the near term.

Google Cloud Revenue Surges 103% to $30.7 Billion

Google Cloud was a major growth driver, with quarterly revenue more than doubling to $30.7 billion from a year earlier.

Growth came from Google Cloud Platform (GCP), including AI infrastructure, AI solutions and traditional cloud services. TPU system sales also contributed significantly, although Alphabet said cloud revenue remained strong even without that contribution.

Google Cloud's operating income more than tripled to $11.1 billion. Its operating margin expanded to 36.2%, compared with 23.7% in the corresponding quarter of 2025.

Cloud Backlog Reaches $561 Billion

Google Cloud's backlog stood at $561 billion at the end of the quarter. Alphabet expects to recognise slightly more than 55% of this amount as revenue over the following 24 months.

However, capacity constraints and increased reliance on third-party computing resources are expected to affect margins in the near term. Alphabet anticipates continued growth in TPU system sales during the fourth quarter, followed by a substantial revenue increase in 2027.

AI Investments Support Growth Across Google Businesses

Ashkenazi said Alphabet had generated tens of billions of dollars in AI revenue through Google Cloud year-to-date. AI-related improvements in Search were also contributing to the company's strongest query growth in five years.

Google One emerged as Alphabet's fastest-growing subscription product, supported by demand for AI-focused plans.

The company's Other Bets segment, which includes businesses such as Waymo, generated $372 million in revenue but recorded a $2 billion operating loss. Alphabet-level activities reported an operating loss of $7.7 billion, reflecting shared AI research and development expenses.

Conclusion

Alphabet's third-quarter results highlighted strong advertising performance and rapid Google Cloud expansion. However, substantial AI infrastructure investments are increasing depreciation, operating costs and pressure on free cash flow. The company's future performance will depend on how effectively it converts these investments into sustainable revenue and profitability.