NEW YORK, July 22, 2026, 4:18 p.m. EDT — Alphabet NASDAQ:GOOGL said its cloud division was responsible for 63% of its operating profit growth, but free cash flow fell below zero in the period.
- Google Cloud reported an 82% increase in revenue to $24.8 billion. The unit posted an operating margin of 35.6%.
- The cloud segment accounted for 63% of Alphabet’s annual growth in operating income.
- Capital expenditures represented 115% of operating cash flow. The company reported no quarterly buybacks.
Google Cloud accounted for 63% of Alphabet’s operating-income growth in the second quarter. However, increased infrastructure spending resulted in quarterly free cash flow of negative $5.9 billion.
The division is more significant than headline profit. Cloud is approaching the profitability of Alphabet’s advertising-driven Services segment. Meanwhile, cash conversion declined.
Cloud reported an operating margin increase to 35.6%, up from 20.7%. For every additional dollar in Cloud revenue, approximately 54 cents contributed to extra operating income. The comparable figure for Alphabet overall stood at 41 cents.
Capital expenditures rose to $44.9 billion, twice the figure from the prior year, accounting for 115% of operating cash flow. Alphabet did not buy back any shares, compared to $13.2 billion in repurchases during the previous period.
Equity proceeds reached $49.6 billion during the quarter, while senior notes contributed an additional $20.3 billion. Alphabet stated the funds from equity will be used to expand AI infrastructure and computing capacity worldwide.
Revenue increased by 24% to reach $119.8 billion. Analysts’ forecasts had been for $116.93 billion in revenue and 64% growth in Cloud. However, Cloud growth came in at 82%.
The gap between profits and cash flow widened rapidly. The following ratios are derived from Alphabet’s official disclosures.
| Investor measure | Q2 2025 | Q2 2026 |
|---|---|---|
| Google Cloud revenue | $13.6 billion | $24.8 billion |
| Cloud operating margin | 20.7% | 35.6% |
| Cloud share of group operating income | 9.0% | 21.6% |
| Capital spending as a percentage of operating cash flow | 80.9% | 115.0% |
| Free cash flow | $5.3 billion | -$5.9 billion |
| Share buybacks | $13.2 billion | $0 |
Cloud contributed an additional $6.0 billion to operating income from the previous year. Alphabet increased total operating income by $9.5 billion. Services delivered an extra $6.5 billion, but combined losses elsewhere and central expenses offset gains by $3.0 billion.
Google Services generated operating income of $39.5 billion, marking a margin of 41.8%. This was 6.2 percentage points higher than that of Cloud. Search revenue increased by 17%, and YouTube advertising posted a 13% gain.
EPS was reported at $9.11, but scrutiny is warranted. An equity-securities gain of $99.0 billion contributed $6.26 per share. Subtracting this from the headline EPS leaves approximately $2.85, a calculation not presented as an adjusted figure by the company.
Chief Executive Sundar Pichai stated, “Our AI investments are redefining what’s possible across every part of our business.” s206.q4cdn.com
Shay Boloor, chief market strategist at Futurum Equities, noted AI was driving Big Tech “toward a hybrid model.” Alphabet’s results matched this. Cloud profit margins increased, and capital expenditure was higher than operating cash flow. Reuters
The U.S. cash session ended at the dateline, though after-hours trading continued. Alphabet Class A shares declined 1.5% during regular hours and dropped roughly 7% across five sessions.
Investors are looking to Microsoft NASDAQ:MSFT, which reports on July 29, followed by Amazon.com NASDAQ:AMZN on July 30. The companies’ cloud results will reveal if Alphabet’s recent margin surge is an industry trend.
Risks: Cloud expansion may slow from a high starting point. Additional setbacks for Gemini could dampen AI demand. Increased capital expenditure might continue to pressure free cash flow and restrict share repurchases.
Another assessment is cash conversion. Profits from cloud operations need to consistently surpass infrastructure expenses.
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