> ## Content Index > Fetch the complete content index at: https://www.earningsdriver.com/llms.txt > Use this file to discover other available public pages before exploring further. # Alphabet Sells Ads Beside Search Results. Its Fastest Growth Comes From Renting Out Computing. - URL: https://www.earningsdriver.com/alphabet-sells-ads-beside-search-results/ - Published: 2026-10-30T11:26:54.000Z - Updated: 2026-11-04T05:20:19.000Z - Description: Alphabet earns most on search ads, and its fastest-growing profit comes from renting out computing that it must build first. Watch paid clicks and cost per click in Search, and Google Cloud's operating margin as depreciation rises. - Author: Heejung Chang - Tags: How Companies Make Money **In one line:** Alphabet earns most on search ads, and its fastest-growing profit comes from renting out computing that it must build first. Watch paid clicks and cost per click in Search, and Google Cloud's [operating margin](https://www.earningsdriver.com/glossary/#operating-margin) as [depreciation](https://www.earningsdriver.com/glossary/#depreciation) rises. **At a glance** - **Latest:** in July–September 2026, paid clicks +8% (against +13% in April–June) and cost per click +4% from a year earlier, and a Google Cloud operating margin of 36.2%, against 23.7% a year earlier - **Biggest risk:** AI answers in Search showing fewer ads or earning less per question, and [data center](https://www.earningsdriver.com/glossary/#data-center)s built faster than Cloud customers fill them - **Reports:** Quarterly. Next results: see [Earnings Dates](https://www.earningsdriver.com/earnings). Watch the video version of this article. On October 28, 2026, Alphabet, formed in 2015 as Google's parent company, reported [revenue](https://www.earningsdriver.com/glossary/#revenue) of $127.6 billion for July–September 2026, up 25% from a year earlier. Google Cloud, which rents computing to other companies, more than doubled its revenue, to $30.7 billion. In the same quarter, Alphabet spent $51.4 billion on data centers and servers. Its operations brought in $42.3 billion of cash. On October 29, Alphabet's Class A shares fell 12.6%. Reuters linked the fall to concerns about the rising cost of AI. Google Cloud's growth explains most of the revenue gain. It does not show whether the [capital spending](https://www.earningsdriver.com/glossary/#capital-spending) behind it will earn a profit. ## What it sells vs. what it earns on Alphabet earns on the ads shown beside search results. When someone types a question such as "running shoes," advertisers bid in an auction to place an ad beside the results. Most of them pay only when the person clicks. A question that signals a purchase draws higher bids. Google pays browser makers, phone makers and mobile carriers to make Google the default search engine on their products. It also pays the websites that show Google's ads (Alphabet reports the revenue from those ads as Google Network). Alphabet calls these payments traffic acquisition cost (TAC). In July–September 2026, TAC came to 20.0% of Google's advertising revenue. A US court's December 2025 judgment in a monopoly case lets Google keep paying for default placement, but not under contracts that bar rival search engines. Alphabet reports three [segment](https://www.earningsdriver.com/glossary/#segment)s. Google Services includes Search, YouTube, subscriptions such as YouTube Premium and Google One, the Google Play store and Pixel phones. Google Cloud rents computing, storage and AI models to companies, and sells the Workspace office apps. Other Bets holds smaller businesses such as Waymo, a self-driving taxi service. **Table 1 — Alphabet's segments and revenue lines, July–September 2026** | Segment and revenue line | Revenue | Change from a year earlier | Operating income | | ------------------------------------ | ----------- | -------------------------- | ---------------- | | **Google Services** | **$96.3B** | **+11%** | **$39.2B** | | Search & other | $63.4B | +12% | | | YouTube ads | $11.2B | +9% | | | Subscriptions, platforms and devices | $14.3B | +11% | | | Google Network | $7.5B | +1% | | | **Google Cloud** | **$30.7B** | **+103%** | **$11.1B** | | **Other Bets** | **$0.4B** | **+8%** | **−$2.0B** | | Alphabet-level costs | — | — | −$7.7B | | **Alphabet** | **$127.6B** | **+25%** | **$40.6B** | *Alphabet reports operating income for the segments only, so the four Google Services lines share one figure. Alphabet-level costs are mostly shared AI research. Segment revenues add to $127.4B; the rest of the total is currency-hedge gains. Source: Alphabet Q3 2026 results.* Google Cloud added $15.6 billion of revenue from a year earlier, 62% of Alphabet's revenue growth in July–September 2026\. Alphabet said Google Cloud's growth came largely from infrastructure and platform services, and from TPU system sales. TPUs are the AI chips Google designs. Since April–June 2026, Google Cloud has also recorded revenue from selling TPU systems to customers for their own data centers, under a limited number of agreements. Cloud customers sign contracts that run for years. Alphabet reports the revenue it has contracted but not yet counted as revenue as its [backlog](https://www.earningsdriver.com/glossary/#backlog). Alphabet's data centers also run Google's own AI products. Google Search shows AI-written answers in AI Overviews and in AI Mode, a chat-style search. Alphabet places ads in both. It does not report their revenue per question. ## What moves the profit > **Operating income ≈ (Paid clicks × Cost per click − Traffic acquisition cost) + YouTube, subscriptions and devices + Cloud usage × Price − Depreciation and power − Shared AI research and overhead** - **Paid clicks.** Clicks on ads on Google Search and Alphabet's other sites, such as Gmail and Maps. Alphabet reports the change from a year earlier for paid clicks and cost per click, not the counts or prices. - **Cost per click.** The average price an advertiser pays Google for each click, set at auction. A stronger dollar lowers it, because ads sold abroad are converted into dollars. - **Traffic acquisition cost.** Payments for default search placement and to websites that show Google's ads. Alphabet reports the total and its share of advertising revenue. - **YouTube, subscriptions and devices.** YouTube ads, paid subscriptions, Google Play and Pixel phones. Alphabet reports their revenue but combines their costs with Search's in Google Services [operating income](https://www.earningsdriver.com/glossary/#operating-income). - **Cloud usage and price.** Computing, storage and AI services rented to companies, Workspace subscriptions and TPU system sales. Not disclosed separately. Google Cloud's revenue and operating income reflect them. - **Depreciation and power.** The cost of data centers and servers, spread over their useful lives, and the electricity that runs them. Both are charged to Search, Cloud and AI research. Alphabet reports depreciation for the whole company. - **Shared AI research and overhead.** Alphabet books the cost of developing its Gemini AI models outside the segments, as Alphabet-level activities, with some corporate costs. ## Reading the earnings: what to watch, and how Alphabet's [results release](https://www.earningsdriver.com/glossary/#results-release), quarterly report (Form [10-Q](https://www.earningsdriver.com/glossary/#form-10-q-and-form-10-k)) and [earnings call](https://www.earningsdriver.com/glossary/#earnings-call) are all at abc.xyz/investor. - **Search revenue growth, split into paid clicks and cost per click.** *Read it:* slower growth in paid clicks can mean more questions end in AI answers, where people click on fewer ads. Slower growth in cost per click points to weaker bids or a stronger dollar. *Latest:* +8% and +4% in July–September 2026 from a year earlier, against +13% and +3% in April–June 2026, while search queries grew at their fastest rate in five years, according to Alphabet. Search & other revenue rose 12%, against 17%. Alphabet named currency as the largest cause of the slowdown, although cost per click grew faster than in April–June. - **Google Cloud operating margin, against depreciation.** *Read it:* Alphabet does not give Google Cloud's own depreciation. If Google Cloud's margin stays level while Alphabet's total depreciation rises, Google Cloud's sales are growing fast enough to cover its share of the new cost. *Latest:* 36.2% in July–September 2026, against 35.6% in April–June 2026 and 23.7% a year earlier. Alphabet's depreciation, for all segments, was $8.4 billion in July–September 2026, up 49% from a year earlier. - **Backlog, and the share due within 24 months.** *Read it:* a falling share due within 24 months means more of the signed revenue arrives later. *Latest:* $567.7 billion on September 30, 2026, mostly Google Cloud's, against $157.7 billion a year earlier, with just over 55% due within 24 months. - **Capital spending, against cash from operations.** *Read it:* a widening gap means Alphabet is building faster than its business brings in cash. *Latest:* $51.4 billion of capital spending against $42.3 billion of [cash from operations](https://www.earningsdriver.com/glossary/#cash-from-operations) in July–September 2026, a [free cash flow](https://www.earningsdriver.com/glossary/#free-cash-flow) of −$9.1 billion. ## Leading indicators (outside Alphabet's filings) - **AI companies' computing agreements.** AI developers sign multi-year computing agreements before they use the capacity. Signed agreements enter Google Cloud's backlog first. *(Cloud usage)* - *When:* as announced. *Where:* the companies' announcements. - *Latest:* on April 6, 2026, Anthropic, the developer of the Claude AI models, agreed with Google and Broadcom on TPU capacity using several gigawatts of power. Broadcom works with Google on TPUs. The capacity is expected to start operating from 2027. - **Global advertising forecasts.** A higher forecast points to higher bids in Google's auctions. *(cost per click and paid clicks)* - *When:* twice a year, in June and December. *Where:* This Year Next Year, a report by WPP Media, part of the advertising group WPP. - *Latest:* on June 16, 2026, WPP Media raised its forecast for 2026 global advertising revenue growth, excluding US political advertising, to 8.9%, from 7.1% in December 2025. ## What Wall Street is asking Across Alphabet's last four earnings calls, from February to October 2026, analysts kept returning to a few questions. 1. **"How much more will Alphabet spend on data centers and servers, which later become depreciation?"** In October, Anat Ashkenazi, the finance chief, said the 2026 range of $195 billion to $205 billion was unchanged from the previous forecast. In February the range had been $175 billion to $185 billion. She said Alphabet expects capital spending to "increase significantly in 2027." 2. **"Is a lack of computing capacity limiting Google Cloud revenue?"** In October, Thomas Kurian, who runs Google Cloud, said "we could obviously serve a lot more demand with capacity." 3. **"When will Google Cloud record more TPU system revenue?"** In October, Ashkenazi said Alphabet had recorded some system sales as revenue and expects more through 2027. 4. **"Do AI answers in Search earn less from ads than search results do?"** In October, Philipp Schindler, the chief business officer, said the growth of AI Mode queries had an effect on Search's slower revenue growth, because of "the lower monetization we were seeing in AI Mode." He said Google is "now scaling high-quality ads within AI Overviews and AI Mode to more users and queries." 5. **"Will Google Cloud's operating margin stay level as Alphabet adds capacity?"** In October, Ashkenazi said Alphabet started renting computing capacity from other providers in late September 2026\. She said Alphabet expects "margin headwinds in the near term" from that rented capacity. ## A note on valuation On October 29, 2026, Alphabet's shares closed at about $284\. Its [enterprise value](https://www.earningsdriver.com/glossary/#enterprise-value), the [market value](https://www.earningsdriver.com/glossary/#market-value) of about $3.49 trillion plus $125 billion of long-term debt minus $265 billion of cash and marketable securities on September 30, 2026, was about $3.35 trillion. That was about 21 times its operating income for October 2025–September 2026, $157.0 billion. Alphabet's January–September 2026 [net income](https://www.earningsdriver.com/glossary/#net-income) included $127.3 billion of gains on shares it holds, such as SpaceX, which operating income leaves out. ## The bottom line Search ads earn Alphabet the most, and Google Cloud grows fastest. In July–September 2026, Alphabet spent more on data centers and servers than its operations brought in. The test is whether ads in AI answers earn as much as search ads, and whether Cloud customers fill new data centers. *(See:* [*Nvidia Sells Chips. It Earns on Being Hard to Leave.*](https://www.earningsdriver.com/nvidia-sells-chips-it-earns-on-the-lock-in/)*)* **Will AI answers take the questions Google sells?** In [**Earnings Driver**](https://www.earningsdriver.com/book), the Alphabet chapter gives Search, YouTube, Cloud and subscriptions a formula each, and shows how AI could take questions away from Search and bring new customers to Google Cloud. --- *Sources: Alphabet Q3 2026 results release (October 28, 2026) and Form 10-Q for the quarter ended September 30, 2026; Alphabet Q2 2026 results release (July 22, 2026) and Form 10-Q for the quarter ended June 30, 2026; Alphabet Q4 2025 results release (February 4, 2026); Alphabet Form 10-Q for the quarter ended September 30, 2025; Alphabet earnings calls of February 4, April 29, July 22 and October 28, 2026; Anthropic announcement (April 6, 2026); WPP Media This Year Next Year midyear forecast (June 16, 2026); Class A share prices as of October 28 and 29, 2026; Reuters (October 29, 2026); StatCounter (September 2026).* **For sources that work for any company — filings, earnings calendars, consensus estimates — see** [**Where to find the numbers**](https://www.earningsdriver.com/numbers)**.** *Educational only, not investment advice. Figures as of the periods noted.*