Google Earnings Call: Gemini Monthly Active Users Reach 1 Billion, but Capital Expenditures Expected to Increase Significantly Next Year

October 29 — Google parent company Alphabet held an earnings call early this morning after releasing its third-quarter 2026 financial results. Quarterly revenue reached $127.6 billion, up 25% year-over-year, with annualized revenue run rate hitting $500 billion, while Google Cloud revenue surged 103% year-over-year to $30.7 billion. However, both revenue and profit slightly missed Wall Street expectations, and shares fell about 9% to 10% in after-hours trading following the report.

On the call, CEO Sundar Pichai said the company's full-stack AI strategy is driving momentum across all business lines. He noted that AI investments have boosted search usage and query growth, with year-over-year query growth hitting a near five-year high, including strong growth in commercial queries. The company is building a seamless experience spanning AI Overviews, AI Mode, and traditional search, with user queries becoming longer, more personalized, and more multimodal.

Pichai also detailed AI product progress: the Gemini app has reached 1 billion monthly active users, making it the fastest-growing product in Google's history; first-party model API processing volume reached nearly 32 billion tokens per minute, up 40% quarter-over-quarter and more than fourfold from a year ago. The company officially announced its next-generation frontier model Gemini 4 Carbon, which leads in multiple benchmarks, with notable advances in cybersecurity and long-horizon task capabilities. Gemini 4 Argon, launched two weeks earlier, has also shown rapid adoption. Additionally, the company unveiled progress on its world model Genie 4 and other developments.

By segment, management noted Google Services revenue grew 11% to $96.3 billion, with search and other advertising revenue up 12% year-over-year, YouTube advertising revenue up about 9% to $11.2 billion, and YouTube Music and Premium subscribers (including trials) exceeding 150 million. Cloud's rapid growth was driven primarily by strong enterprise demand for AI infrastructure, AI solutions, and TPU systems.

Despite management's upbeat tone, profitability and cash flow performance remained in focus. Net income attributable to common shareholders was $26.2 billion, down year-over-year, mainly due to losses on equity securities investments (about $8.7 billion in losses for the quarter). Operating income rose 30% year-over-year to $40.6 billion, with operating margin expanding to 31.8%, but free cash flow turned negative.

Capital expenditures remain elevated. CFO Anat Ashkenazi stated that the company expects capital expenditures to "increase significantly" in 2027. Meanwhile, the company maintained its full-year 2026 capital expenditure guidance unchanged, still in the range of $195 billion to $205 billion.

In his remarks, Pichai said the company is confident in long-term demand, is accelerating capacity buildout, and expects the pace of model iteration and product rollout to further accelerate over the next 12 months. Other businesses such as Waymo also continue to advance, with autonomous driving mileage exceeding 300 million miles. The market reaction was more cautious. Investors, on the one hand, acknowledged the rapid growth of the cloud business and the boost AI provides to search; on the other hand, they expressed concerns about revenue and profit slightly below expectations, high capital expenditures, and pressure on free cash flow. Management's optimistic remarks on the AI outlook during the earnings call did not fully dispel the market's doubts about the pace of returns on short-term investment.