Alphabet reported a 19% rise in first-quarter revenue, ignoring currency moves, to $109.9bn ($107.2bn expected)
The core advertising business, which includes Google Search and YouTube, saw revenue rise by 16% to $77.3bn. Google Cloud revenue increased by 63% to $20.0bn, with cloud backlog nearly doubling quarter-on-quarter to $462bn.
Operating income rose 30% to $39.7bn ($36.2bn expected), supported by strong growth across Google Services and a significant improvement in Google Cloud profitability.
Free cash flow fell 47% to $10.1bn, as higher capital expenditure more than offset stronger operating cash generation. Net cash, including leases, was $36.4bn at quarter-end.
Capital expenditure guidance for 2026 has been increased to between $180-190bn (previously $175-185bn), and 2027 is expected to see a significant increase.
The shares rose 7.2% in after-hours trading.
Our view
Alphabet looks every inch the market darling right now, with investors rewarding a business that is delivering on both sides of the AI debate. Cloud growth is accelerating, while Search is proving far more resilient than many feared. It is almost hard to believe that parts of the market were treating Alphabet as an AI loser not long ago, because today it arguably has one of the strongest full-stack AI positions in mega-cap tech.
The core Search business remains the key profit engine, and the latest quarter gave investors more evidence that AI is helping rather than hurting. Search growth stepped up meaningfully, supported by better commercial behaviour, stronger query activity and improving ad tools. The risk that AI changes how people search has not gone away, but for now, Alphabet is showing it can adapt the product and keep advertisers engaged.
Google Cloud is the clearest growth engine. Revenue growth has moved to another level, backlog has surged, and AI solutions are now a major driver of demand. That gives Alphabet much better visibility than it has had historically, and the business is no longer just growing quickly - it is doing so with stronger profitability.
The trade-off is investment. Capital spending is being pushed higher again, and management expects another significant step up in 2027. That will weigh on free cash flow in the near term, but demand is still running ahead of supply, and Alphabet has the balance sheet and cash generation to keep funding the buildout.
Alphabet also has more ways to win than most. Its own chips, Gemini models, cloud infrastructure, consumer products, advertising reach and YouTube all feed into the same AI flywheel. Autonomous driving, through its majority stake in Waymo, adds another interesting long-term option, even if that business’ $126bn valuation is technically small in the context of the wider group today.
There are risks. Search disruption is still the biggest strategic question, and regulatory scrutiny isn’t going away. Alphabet avoided a potential headache last year after some favourable rulings in major cases, but this is always a risk with big tech companies.
All in, Alphabet remains a fantastic business, and we think it’s one of the highest-quality names in tech. But the market has woken up to that fact, and with the earnings multiple now back towards multi-year highs, a lot of optimism is already priced in. The risk/reward looks well balanced, with others in the sector performing well but not yet receiving the same shine.
Environmental, social and governance (ESG) risk
The technology sector is generally medium/low risk in terms of ESG, though some segments are more exposed, like Electronic Components (environmental risks) and data monetisers (social risks). Business ethics tend to be a material risk within the tech sector, ranging from anti-competitive practices to intellectual property rights. Other key risks include labour relations, data privacy, product governance and resource use.
According to Sustainalytics, Alphabet’s overall management of material ESG issues is strong.
Monopoly and market dominance concerns are a key regulatory risk. It remains the subject of antitrust investigations in several countries, leading to calls from both EU and US regulators for the breakup of its online advertising business. Alphabet’s management of data handling is strong, aided by its deep pockets. But this remains a key risk to monitor in the evolving landscape of AI.
Alphabet key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.