🔎 Google: The $99 Billion Asterisk
Cloud re-accelerates as the backlog hits $514 billion
Welcome to the Premium edition of How They Make Money.
Over 300,000 subscribers turn to us for business and investment insights.
In case you missed it:
Alphabet just reported $112 billion in net profit on $120 billion in revenue.
That’s not a typo. The explanation is a $99 billion paper gain on equity investments, largely reflecting revaluations of Alphabet’s stakes in Anthropic and SpaceX.
Strip that out, and the operating quarter was still exceptional. AI demand is outrunning Google’s capacity, but the cost of catching up is rising just as fast.
Here’s what stood out this quarter.
Today at a glance:
Alphabet Q2 FY26.
Funding the machine.
Key Insights from the call.
What to watch moving forward.
1. Alphabet Q2 FY26
Income statement:
Alphabet disclosed a $99 billion paper gain from its equity investments along with small items under other income.
Anthropic’s post-money valuation rose from $380 billion to $965 billion in three months. Alphabet reportedly owns roughly 14%, making Anthropic an obvious contributor to the gain. But Alphabet did not disclose the contribution from each investment, and SpaceX’s June IPO also created a public-market price for a stake Alphabet has held since 2015.
Revenue grew 24% Y/Y to $119.8 billion ($2.8 billion beat).
🔎 Advertising: $81.6 billion (+14%).
Search: $63.3 billion (+17%).
YouTube ads: $11.1 billion (+13%).
Network: $7.3 billion (-1%).
📱 Subscriptions, platforms, and devices: $12.9 billion (+15%).
☁️ Cloud: $24.8 billion (+82%).
Margin trends:
Gross margin: 62% (+2pp Y/Y).
Operating margin: 34% (+2pp Y/Y).
Services (Advertising & Other): 42% (+2pp Y/Y).
Cloud: 36% (+15pp Y/Y).
Cash flow:
Operating cash flow was $39.1 billion (+39% Y/Y).
Free cash flow flipped negative to a $5.9 billion outflow (compared to $24.5 billion generated last year).
With CapEx now expected to reach ~$200 billion in FY26 (up from $185 billion previously), most of Alphabet's operating cash flow will be plowed back into AI spending.
Balance sheet:
Cash, cash equivalents, and marketable securities: $242.5 billion.
Long-term debt: $98.2 billion.