Alphabet may be best known for the Google search engine, but all eyes will be on its Google Cloud segment when it reports third-quarter earnings on Wednesday afternoon. If Meta’s earnings last week were any indication, investor attention will be squarely on the costs of the segment’s artificial-intelligence investments, and how it intends to fund further growth.
Google’s parent Alphabet is one of the clearest early winners in the AI boom. Although investors once feared the company’s future prospects might be at risk from AI, search advertising is on pace to have its best annual sales growth since 2021. At over $60 billion (of which two-thirds were ads), last year YouTube had the highest sales of any video streamer, and Wall Street expects its ad revenue to grow by 12% this year.
While Google Cloud was once in a distant third place behind Amazon Web Services (AWS) and Microsoft Azure, Google Cloud is now the fastest-growing of the lot and despite mounting depreciation expenses, its operating margin has risen. Analysts project third-quarter cloud revenue to grow by 90% to $29 billion, and segment operating income is expected to rise to nearly $10 billion, up 171% from last year.
Overall, the Wall Street consensus is for sales growth of 25% to $128 billion.
But the costs of this growth are in sharp focus this fall. In 2026, Alphabet expects to spend around $200 billion on capital expenditures, and with two quarters in the books, that leaves about $120 billion for the second half of the year. On last quarter’s earnings call, chief financial officer Anat Ashkenazi reiterated that next year’s spend would “increase significantly.” Further, in the first half of the year Alphabet spent $56 billion on acquisitions and nonmarketable securities, the latter being primarily Anthropic shares.
Capex already exceeded Alphabet’s substantial cash flow from operations last quarter, and Wall Street expects that to continue into 2028. As a result, for the first time since 2017, there were no share repurchases in the previous two quarters.
Alphabet has been very aggressively raising capital to fund its runaway spending. Over the last nine months it added $77 billion of debt onto its balance sheet in a variety of offerings over multiple currencies. In the first half of 2026, the company also raised $30 billion from share sales, as well as $19 billion in mandatory convertible preferred stock. More share sales were slated for the third quarter. The June 30 balance sheet was flush with cash and marketable debt securities, and Alphabet seems pretty serious about spending it all.
Last quarter, the company also reported that it had $900 billion of future supply and lease obligations.
Alphabet’s Anthropic counterparty risk came into sharp focus on Monday with the release of the startup’s prospectus for its initial public offering. “Google” is mentioned 109 times in the document. It’s a named competitor, a greater-than-5% shareholder after the IPO, and one of Anthropic’s most important suppliers.
Besides Google, Anthropic may be the largest user of Google’s Tensor Processing Unit (TPU) AI chips. It has an agreement with Google Cloud for $114.5 billion through 2033. There’s another cloud deal for TPUs that runs from 2028 through 2031 worth $125 billion to $150 billion, though Google may not be the sole service provider. In addition, Broadcom –which designs the chips with Google–is charging Anthropic another $161 billion to rent TPUs in five year contracts.
Much of Google Cloud and TPU’s current and future success is dependent on Anthropic, and Alphabet’s stock may begin to move on Anthropic news, the same way Oracle gets buffeted by shifting OpenAI sentiment.
Google also owned 551 million SpaceX shares at the end of the last quarter, which were worth $94 billion. But the stock declined 11.7% during the third quarter, meaning that unless Alphabet sold shares, it will take an $11 billion charge for the unrealized loss. Last quarter, Alphabet booked a $99 billion unrealized gain from its equity securities after the SpaceX IPO.
These unrealized gains and losses make the company’s net income and earnings per share hard to gauge. In the third quarter of 2025, the company booked $11 billion in unrealized equity gains, offset by a $3.5 billion European Union fine, which resulted in EPS of $2.87. This year, the analyst consensus is for EPS of $3.02, but comparisons with the previous year have become more opaque.
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