For most of 2026, each Alphabet earnings call brought a higher spending number. This one did not. The full-year 2026 capital expenditure range stayed at $195.0 billion to $205.0 billion, and spending is expected to rise significantly in 2027, management said on the earnings call. Executives held back the size of next year's increase until the fourth-quarter call. The money goes mainly into servers, networking gear and data centers that power Google Search, the Gemini models and the fast-growing cloud unit. The scale of the buildout becomes clearer against the company's own history. Capital spending for full-year 2025 came to $91.4 billion, Alphabet said on its February call.
The quarter itself showed why the company keeps spending. Revenue grew 25% to $127.6 billion, the company reported in its filing. Google Cloud was the standout, with sales up 103% to $30.7 billion as TPU system sales added to demand for its cloud platform. Search, still the largest business, grew more slowly, at 12%. The release also showed how the buildout is being paid for: in the quarter Alphabet issued senior unsecured notes and sold shares through an at-the-market program.
Investors focused less on growth than on cash. Free cash flow turned negative in the quarter, as CNBC's results story and its analyst roundup noted, and the next day the shares had their steepest one-day fall since Google's 2004 listing, the network reported. On the call, analysts pressed management on how TPU system sales are recognized, what margins they carry and how they affect capital intensity, and executives declined to give product-level margins, pointing to qualitative benefits instead. They also acknowledged that queries in AI Mode earn less than traditional search, which weighed on search growth in the quarter. Management also said on the call that renting third-party compute will squeeze cloud margins in the near term and that building TPU inventory will pressure free cash flow, and it promised details of the 2027 increase on the fourth-quarter call.