Alphabet’s AI Boom: Q1 Profit Soars 81% on Cloud Growth

Alphabet has experienced a strong start to 2026, with its first-quarter net profit surging by 81% year-on-year, according to CEO Sundar Pichai. The company attributes its success, particularly within its cloud division, to the growing momentum in artificial intelligence (AI) and plans to increase investments to support continued growth.

The California-based technology giant reported a net profit of $62.6 billion for the first quarter, a substantial increase from $34.5 billion in the same period last year. This figure includes a notable $36.9 billion gain from equity securities. Alphabet’s revenue also saw a significant rise, climbing 22% year-on-year to $109.9 billion, up from $90.2 billion in the prior year. This marks the eleventh consecutive quarter of double-digit revenue growth for the company.

Google Cloud has been a key driver of this performance, experiencing a 63% year-on-year revenue increase to $20 billion. This growth positions Google Cloud as a significant player, now approximately one-third the size of Google Search, the company’s largest business segment. Operating income for the cloud division jumped by 32.9% year-on-year to $6.6 billion. “Cloud accelerated again this quarter due to strong demand for our AI products and infrastructure,” Pichai stated during the first-quarter earnings call. “Our enterprise AI solutions have become our primary growth driver for cloud for the first time.” He further noted that Gemini Enterprise is gaining significant traction, with paid monthly active users increasing by 40% quarter-on-quarter, and consumer AI subscriptions achieving their strongest quarter, boosted by the Gemini app. First-party models are now processing over 16 billion tokens per minute via APIs.

Pichai highlighted that the company is currently facing constraints in compute capacity in the near term, indicating that cloud revenue could have been higher if demand could be fully met. “So we are working through that moment, and we are investing,” he added. Anat Ashkenazi, Chief Financial Officer of Alphabet and Google, reported that Google Cloud’s backlog nearly doubled sequentially to $462 billion by the end of the first quarter. This growth was fueled by strong demand for enterprise AI offerings and the inclusion of tensor processing unit (TPU) hardware sales. Ashkenazi expects over 50% of this backlog to be recognized as revenue within the next 24 months. Google has recently introduced its 8th generation TPUs, custom AI accelerator chips designed for AI model training and inference. While previously exclusive to Google’s cloud, the company now plans to offer these TPUs to select customers for their own data centers, expanding the potential market. Ashkenazi anticipates recognizing a small percentage of revenues from these agreements later this year, with the majority expected in 2027.

The company’s substantial capital expenditure reflects its commitment to AI. In the first quarter, capital expenditure (capex) reached $35.7 billion, a 107% increase year-on-year. The majority of this spending, approximately 60% on servers and 40% on data centers and networking equipment, is directed towards technical infrastructure supporting AI. “We are seeing unprecedented internal and external demand for AI compute resources,” Ashkenazi explained. “The strong results reinforce our conviction to invest the capital required to continue to capture the AI opportunity.” Consequently, Alphabet has raised its full-year 2026 capital expenditure guidance to between $180 billion and $190 billion, up from the previous $175 billion to $185 billion range, with further significant increases anticipated for 2027.

Alphabet’s advertising revenue, which still constitutes the largest portion of its income, saw a 15.5% year-on-year increase to $77.3 billion in the first quarter. This includes revenue from Google Search, YouTube ads, and the Google Network. “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,” Pichai commented. Google Search revenue specifically grew by 19% to $60.4 billion, while YouTube ad sales increased by 11% to $9.9 billion. In contrast, revenue from Other Bets, which includes the Waymo driverless taxi service, decreased to $411 million, with the segment incurring an operating loss of $2.1 billion. Alphabet plans to continue hiring in critical investment areas like AI and cloud. As of March 31, 2026, the company’s employee count stood at 194,668, an increase from 185,719 in the previous year.