On April 29, 2026, Alphabet Inc. reported first-quarter 2026 results that beat consensus on every headline metric: $109.9 billion in revenue, up 22% year-over-year, Google Cloud accelerating to 63% growth with backlog nearly doubling quarter-over-quarter to over $460 billion, and diluted earnings per share of $5.11, up 82%. But underneath the eye-popping EPS growth sits a $37.7 billion other-income gain — mostly unrealized marks on non-marketable equity securities — that did more to inflate net income than the underlying business did. Strip that gain out and the operating story is still good. It is not an 82%-growth story.
The Headline Numbers
The quarter ended March 31, 2026 was Alphabet's 11th consecutive quarter of double-digit revenue growth:
| Metric | Q1 2025 | Q1 2026 | YoY Change |
|---|---|---|---|
| Total Revenue | $90.2B | $109.9B | +21.8% |
| Cost of Revenue | $36.4B | $41.3B | +13.5% |
| Gross Margin | 59.7% | 62.4% | +2.7pp |
| Operating Income | $30.6B | $39.7B | +29.7% |
| Operating Margin | 33.9% | 36.1% | +2.2pp |
| Other Income, net | $11.2B | $37.7B | +237% |
| Net Income | $34.5B | $62.6B | +81.2% |
| Diluted EPS | $2.81 | $5.11 | +81.9% |
Every operating line moved in the right direction: revenue growth accelerated to 22% from 12% a year ago, gross margin expanded 270 basis points as cost of revenue grew half as fast as revenue, and operating margin crossed 36% for the first time in the current growth cycle. That is a genuinely strong quarter on its own merits.
But look at the gap between operating income growth (+30%) and net income growth (+81%). Almost the entire difference is the "Other income (expense), net" line, which swung from $11.2 billion to $37.7 billion — a $26.5 billion year-over-year swing that Alphabet's own release attributes "primarily to net unrealized gains on our non-marketable equity securities." That is mark-to-market accounting on a portfolio of private-company stakes, not cash the business generated by selling ads or cloud compute. We come back to this below, because it is the single most important thing to understand about this quarter's numbers.
Revenue Deep Dive: Cloud Finally Breaks Out
Alphabet reports revenue across Google Services (Search, YouTube, Network, subscriptions/platforms/devices), Google Cloud, and Other Bets:
| Segment | Q1 2025 | Q1 2026 | YoY Change |
|---|---|---|---|
| Google Search & other | $50.7B | $60.4B | +19.1% |
| YouTube ads | $8.9B | $9.9B | +10.7% |
| Google Network | $7.3B | $7.0B | −3.9% |
| Google subscriptions, platforms, and devices | $10.4B | $12.4B | +19.3% |
| Google Services total | $77.3B | $89.6B | +16.0% |
| Google Cloud | $12.3B | $20.0B | +63.4% |
| Other Bets | $0.45B | $0.41B | −8.7% |
| Total revenue | $90.2B | $109.9B | +21.8% |
Google Search ($60.4B, +19%): Search is not decelerating despite two years of AI-search-disruption narratives. Management credits AI Overviews and the Gemini-powered search experience with driving query volume to an "all time high" rather than cannibalizing it. Query growth plus monetization improvements are compounding rather than trading off against each other, at least so far.
Google Cloud ($20.0B, +63%): This is the number that matters most. Cloud growth accelerated from the low-30s a year ago to 63% — a rate more typical of a scale-up than a business already generating $80 billion in annualized revenue. The driver is a mix of core GCP consumption, enterprise AI infrastructure (renting out TPU and GPU capacity), and enterprise AI software (Gemini Enterprise, which management says grew paid monthly active users 40% quarter-over-quarter). Cloud backlog — contracted, not-yet-recognized revenue — rose to over $460 billion, nearly double the prior quarter. Cloud segment operating income more than tripled year-over-year, from $2.2 billion to $6.6 billion, taking segment operating margin from 17.8% to 32.9%. A cloud business at that scale earning 33 cents of operating profit per dollar of revenue, while still growing 63%, is the strongest single data point in this earnings release.
Google Network (−$7.0B, −4%): The lone declining line. Third-party network advertising continues to shrink as advertiser budgets consolidate onto Search, YouTube, and retail media, a multi-year trend across the whole open-web ad ecosystem, not an Alphabet-specific issue.
Other Bets ($0.41B, −9%): Small and shrinking as a revenue line, but strategically the segment to watch — Waymo passed 500,000 fully autonomous rides per week this quarter, a scale milestone even though it barely moves the consolidated revenue needle yet. Other Bets' operating loss widened to $2.1 billion (from $1.2 billion a year ago), which the release links to Waymo-related compensation and investment.
The Margin Story
Margins have been expanding steadily for three years, and Q1 2026 continues that trend at the operating line:
| Metric | FY2022 | FY2023 | FY2024 | FY2025 | Q1 2026 |
|---|---|---|---|---|---|
| Gross Margin | 55.4% | 56.6% | 58.2% | 59.7% | 62.4% |
| Operating Margin | 26.5% | 27.4% | 32.1% | 32.0% | 36.1% |
| Net Margin | 21.2% | 24.0% | 28.6% | 32.8% | 56.9% |
Gross and operating margin both expanded in an orderly, explainable way — TAC discipline, Cloud's swing to profitability, and revenue mix shifting toward higher-margin Search and subscriptions. Net margin is a different story. It jumped from 32.8% in FY2025 to 56.9% in a single quarter, and that jump is not operating leverage — it is the $37.7 billion Other Income line, which is more than triple what net margin expansion from the FY2022–FY2025 trend would predict. Net margin is the metric to treat with the most skepticism this quarter; operating margin is the one that reflects the actual business.
The One Big Question: How Much of the 82% EPS Growth Is Real?
Alphabet's own earnings release does the work of answering this, in a footnote most headlines skipped past. The $37.7 billion Other income (expense), net figure breaks down as:
| Component | Q1 2025 | Q1 2026 |
|---|---|---|
| Interest income | $1.0B | $1.4B |
| Interest expense | ($0.03B) | ($0.5B) |
| Foreign currency exchange gain (loss), net | ($0.1B) | $0.1B |
| Gain (loss) on debt securities, net | $0.2B | ($0.1B) |
| Gain (loss) on equity securities, net | $9.8B | $36.9B |
| Equity method investments, net | ($0.02B) | $0.1B |
| Other | $0.4B | ($0.1B) |
| Total Other income (expense), net | $11.2B | $37.7B |
The company states plainly: "the net effect of the gain on equity securities of $36.9 billion increased the provision for income tax, net income, and diluted net income per share by $8.2 billion, $28.7 billion, and $2.35, respectively." Back that out and Q1 2026 EPS was roughly $2.76 on a like-for-like basis — essentially flat versus Q1 2025's $2.81, even though revenue grew 22% and operating income grew 30%.
This is not a red flag — unrealized gains on equity stakes are real GAAP income, fully disclosed, and Alphabet's own footnote hands you the reconciliation instead of hiding it. But a reader who only sees "EPS up 82%" and extrapolates that growth rate forward is measuring the wrong thing. The business grew operating income 30%. A volatile, non-cash mark on a private securities portfolio grew net income the rest of the way. Those are two different stories, and only one of them is likely to repeat next quarter — Alphabet's own release warns that "fluctuations in the value of our investments... could significantly contribute to the volatility of OI&E in future periods."
Tracking a $704B Company in Plain Text
One of the most clarifying exercises for any investor is to model a company's finances in Beancount, the open-source double-entry accounting system. Double-entry bookkeeping does not let a headline distract you — every dollar of "other income" has to land somewhere on the balance sheet, and you can trace exactly which account absorbed it.
We modeled Alphabet's complete FY2022–Q1 2026 income statements and balance sheets in plain-text Beancount files, sourced line-by-line from the SEC 8-K exhibits Alphabet files alongside each earnings release. Beancount convention: Income accounts carry negative (credit) balances, Expenses carry positive (debit) balances. Here is the Q1 2026 income statement as postings in the ledger:
; Q1 2026 Revenue, Cost of Revenue, Operating Expenses, Other Income, Tax
; Source: Alphabet Q1 2026 Earnings Release (SEC 8-K Ex. 99.1, filed 2026-04-29)
2026-03-31 * "Q1 2026 Revenue" "Google Search & other"
Assets:Current:Accounts-Receivable 60,399,000,000.00 USD
Income:Google-Services:Advertising:Search -60,399,000,000.00 USD
2026-03-31 * "Q1 2026 Revenue" "Google Cloud"
Assets:Current:Accounts-Receivable 20,028,000,000.00 USD
Income:Google-Cloud -20,028,000,000.00 USD
2026-03-31 * "Q1 2026 Other Income (Expense)" "Other income (expense), net"
Assets:Current:Cash-And-Equivalents 37,716,000,000.00 USD
Income:Other-Income-Expense -37,716,000,000.00 USD
2026-03-31 * "Q1 2026 Expenses" "Income tax provision"
Expenses:Income-Tax 14,834,000,000.00 USD
Assets:Current:Cash-And-Equivalents -14,834,000,000.00 USDThe balance sheet is maintained through pad + balance directives sourced from each quarter's actual reported figures, so every period-end total ties exactly to what Alphabet filed:
; Balance Sheet — March 31, 2026
2026-03-31 pad Assets:NonCurrent:Non-Marketable-Securities Equity:Adjustments
2026-04-01 balance Assets:NonCurrent:Non-Marketable-Securities 106,946,000,000.00 USD ; $106.9B
2026-03-31 pad Assets:NonCurrent:Property-Plant-Equipment Equity:Adjustments
2026-04-01 balance Assets:NonCurrent:Property-Plant-Equipment 281,020,000,000.00 USD ; $281.0B
2026-03-31 pad Liabilities:NonCurrent:Long-Term-Debt Equity:Adjustments
2026-04-01 balance Liabilities:NonCurrent:Long-Term-Debt -77,501,000,000.00 USDThe one balance-sheet number that quietly confirms the "other income" story: Non-marketable securities jumped from $68.7 billion to $106.9 billion in a single quarter — a $38.2 billion increase, almost exactly matching the $36.9 billion equity-securities gain flowing through the income statement. The gain did not show up as cash; it showed up as a bigger number sitting on the balance sheet in an account that only re-prices when Alphabet marks it or eventually sells it. Property and equipment, net also kept climbing — $246.6 billion to $281.0 billion in one quarter, or $35.7 billion of capex, consistent with the AI-infrastructure buildout every hyperscaler is running right now.
The complete ledger — every quarter from FY2022 through Q1 2026, reconciled to primary-source filings — is open and auditable:
The Multi-Year Arc
Four fiscal years plus one quarter show a business whose growth rate is re-accelerating, not decelerating, even before you get to the other-income noise:
| Metric | FY2022 | FY2023 | FY2024 | FY2025 | Q1 2026 |
|---|---|---|---|---|---|
| Revenue | $282.8B | $307.4B | $350.0B | $402.8B | $109.9B |
| Revenue YoY Growth | — | +8.7% | +13.9% | +15.1% | +21.8% |
| Google Cloud Revenue | $26.3B | $33.1B | $43.2B | $58.7B | $20.0B |
| Operating Margin | 26.5% | 27.4% | 32.1% | 32.0% | 36.1% |
| Net Income | $60.0B | $73.8B | $100.1B | $132.2B | $62.6B |
| PP&E, net | $112.7B | $134.3B | $171.0B | $246.6B | $281.0B |
Two lines tell the compounding story. Google Cloud revenue has more than doubled in three years ($26.3B → $58.7B annually) while turning from a marginal contributor into a genuinely profitable segment. And PP&E has grown 2.5x since FY2022 as Alphabet, like its hyperscaler peers, keeps pouring capital into data centers, custom TPU silicon, and networking to keep pace with AI infrastructure demand — the same capex arms race playing out at Microsoft, Amazon, and Meta.
The Verdict: Bull vs. Bear
The Bull Case:
- Google Cloud accelerated to 63% growth with operating margin nearly doubling year-over-year (17.8% → 32.9%), and backlog nearly doubled quarter-over-quarter to over $460 billion — the clearest sign yet that Cloud infrastructure spend is converting into contracted, recognizable revenue
- Search revenue grew 19% with query volume at an "all time high" per management, directly rebutting the AI-search-disruption bear case that has weighed on the stock for two years
- Operating margin of 36.1% is the highest in the current growth cycle, and it came alongside 22% revenue growth — margin expansion and growth acceleration happening simultaneously is rare
- Gemini Enterprise paid monthly active users grew 40% quarter-over-quarter, and total paid subscriptions across Alphabet products reached 350 million, giving the company multiple monetization surfaces beyond advertising
- The balance sheet can fund the buildout: $126.8 billion in cash, equivalents, and marketable securities, plus a fresh $31.1 billion senior notes issuance, against a still-investment-grade $77.5 billion in long-term debt
The Bear Case:
- 81% net income growth and 82% EPS growth are substantially an accounting artifact: normalize out the $36.9 billion non-marketable-securities gain and EPS growth is closer to flat ($2.76 vs $2.81 a year ago) — anyone underwriting the stock off the headline growth rate is underwriting the wrong number
- Other income (expense), net is now a genuinely large and volatile swing factor — $11.2 billion to $37.7 billion in one year — and the company itself flags that future marks could go the other way just as easily
- Capital intensity keeps rising: $35.7 billion in quarterly capex (more than double Q1 2025's $17.2 billion) means free cash flow of just $10.1 billion this quarter versus $18.9 billion a year ago, even as operating cash flow grew
- Google Network revenue keeps shrinking (−4% this quarter), a structural decline in third-party web advertising that management has no clear plan to reverse
- Other Bets' operating loss widened to $2.1 billion, partly on Waymo-related compensation costs, with no disclosed timeline for the segment to approach breakeven
Our Take: The operating business Alphabet reported this quarter is genuinely strong — Cloud's acceleration to 63% growth with expanding margins, Search holding its ground against AI disruption fears, and operating margin at a cycle high are all real and durable signals. But the market narrative around "82% EPS growth" needs to be corrected at the source, and Alphabet's own footnote does exactly that: back out the equity-securities mark and the quarter's profit growth looks a lot more like the 22–30% range that revenue and operating income actually delivered. That is still a good quarter. It is a materially less exciting one than the headline suggests, and the gap between the two is precisely the kind of thing double-entry, filing-sourced accounting is built to catch.
