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# Alphabet Q3 Preview: A $514 Billion Cloud Backlog Meets a $205 Billion Capex Bill
- URL: https://www.thealphaagentic.com/alphabet-q3-2026-earnings-preview/
- Published: 2026-10-28T11:00:00.000Z
- Updated: 2026-10-28T16:49:43.000Z
- Description: Capex passed operating cash flow in Q2, and Alphabet's guidance implies bigger quarters ahead. Wednesday tests whether Google Cloud's $514 billion backlog, TPU sales and Anthropic's commitments can carry the bill.
- Author: Eli Yang
- Tags: News, AI, Datacenters, Deals & Earnings, Alphabet (GOOGL), #pair-alphabet-q3-2026-earnings-preview

Alphabet (NASDAQ: GOOGL) goes into its third-quarter report with demand accelerating and cash flow shrinking. Google Cloud revenue rose 82% in the second quarter, and its backlog reached $514 billion. But capex exceeded operating cash flow, and free cash flow turned negative.

Wednesday's question is whether that backlog is turning into revenue fast enough to carry a $195 billion to $205 billion capex plan. For suppliers, the answer sets the pace of orders for TPUs, Nvidia (NASDAQ: NVDA) GPUs, datacenter shells and power into 2027.

Alphabet holds its [call at 4:30 p.m. ET on Wednesday, Oct. 28](https://abc.xyz/investor/news/news-details/2026/Alphabet-Announces-Date-of-Third-Quarter-2026-Financial-Results-Conference-Call-2026-8tpGZsLS6v/default.aspx?ref=thealphaagentic.com), and says the release will be on its investor site before the call. It gives no quarterly revenue or earnings guidance. Analysts expect third-quarter revenue of $128.18 billion, up 25.2% from a year earlier, and Google Cloud revenue of $29.57 billion, up 95.1%, according to [LSEG data reported by Reuters](https://www.investing.com/news/economy-news/big-tech-earnings-a-test-of-the-ai-boom-amid-market-turmoil-4974716?ref=thealphaagentic.com) on Oct. 27.

> Key numbers
> 
> **Google Cloud revenue:** $24.8 billion in Q2 2026, up 82% from $13.6 billion in Q2 2025.
> 
> **Google Cloud backlog:** $514 billion at the end of Q2 2026, up more than $50 billion from the prior quarter.
> 
> **Capex:** $44.9 billion in Q2 2026, against operating cash flow of $39.1 billion in the same quarter.
> 
> **Free cash flow:** negative $5.9 billion in Q2 2026, against positive $10.1 billion in Q1 2026.
> 
> **Q3 2026 revenue consensus:** $128.18 billion, up 25.2% from $102.3 billion in Q3 2025, per LSEG data reported by Reuters on Oct. 27.
> 
> **2026 capex guidance:** $195 billion to $205 billion, raised in July from $180 billion to $190 billion.

## Where Alphabet Stands

In the second quarter of 2026, Alphabet reported revenue of $119.8 billion, Google Cloud revenue of $24.8 billion and capex of $44.9 billion, and its free cash flow was negative $5.9 billion.

| GOOGL, $ millions             | Year ago(Q3 2025) | Q4 2025 | Q1 2026 | Last quarter(Q2 2026) |
| ----------------------------- | ----------------- | ------- | ------- | --------------------- |
| Revenue                       | 102,346           | 113,828 | 109,896 | 119,796               |
| Google Cloud revenue          | 15,157            | 17,664  | 20,028  | 24,768                |
| Google Cloud operating income | 3,594             | 5,313   | 6,598   | 8,814                 |
| Capex                         | 23,953            | 27,851  | 35,674  | 44,924                |
| Free cash flow                | 24,461            | 24,551  | 10,116  | (5,855)               |
| Diluted EPS, $                | 2.87              | 2.82    | 5.11    | 9.11                  |

*Source: Alphabet [Q3 2025](https://www.sec.gov/Archives/edgar/data/1652044/000165204425000087/googexhibit991q32025.htm?ref=thealphaagentic.com), [Q4 2025](https://www.sec.gov/Archives/edgar/data/1652044/000165204426000012/googexhibit991q42025.htm?ref=thealphaagentic.com), [Q1 2026](https://www.sec.gov/Archives/edgar/data/1652044/000165204426000043/googexhibit991q12026.htm?ref=thealphaagentic.com) and [Q2 2026](https://www.sec.gov/Archives/edgar/data/1652044/000165204426000066/googexhibit991q22026.htm?ref=thealphaagentic.com) earnings releases. Capex is purchases of property and equipment.*

## Google Cloud: Growth, Backlog and a Margin Warning

Google Cloud revenue grew 82% to $24.8 billion in the second quarter of 2026, up from 63% growth in the first quarter, and its backlog reached $514 billion.

**Growth:** Matching 82% in the third quarter would take about $27.6 billion of revenue, by our math, against $15.2 billion a year earlier. The LSEG consensus is $29.57 billion, or 95.1% growth, [Reuters reported](https://www.investing.com/news/economy-news/big-tech-earnings-a-test-of-the-ai-boom-amid-market-turmoil-4974716?ref=thealphaagentic.com).

**Backlog:** On the [second-quarter call](https://abc.xyz/investor/events/event-details/2026/2026-Q2-Earnings-Call-2026-GgTAq7Is0z/default.aspx?ref=thealphaagentic.com), CFO Anat Ashkenazi said Cloud backlog rose by more than $50 billion in the quarter to $514 billion, and that Alphabet expects to recognize "just over 50% of the total backlog as revenue over the next 24 months." By our math, that is more than $257 billion over two years, or about $128 billion a year, against second-quarter Cloud revenue of about $99 billion annualized.

**Margins:** Cloud's operating margin rose to 35.6% from 20.7% a year earlier. Ashkenazi said Alphabet would "expand the use of third-party capacity in Q3 as a bridging strategy" while it builds its own, which "will create modest margin pressure in the near-term."

**A bridge deal, disclosed by a supplier:** Alphabet has not named its bridge providers. SpaceX (NASDAQ: SPCX) disclosed one deal in a [June filing](https://www.sec.gov/Archives/edgar/data/1181412/000162828026041150/spacexagreementfwp.htm?ref=thealphaagentic.com): Google agreed to pay $920 million a month from October 2026 through June 2029 for compute that includes about 110,000 Nvidia GPUs, with capacity ramping at a reduced fee through September. After Dec. 31, 2026, either side can end it on 90 days' notice. By our math, the full rate is about $2.8 billion a quarter, starting in the fourth quarter.

## Capex: The Biggest Quarters Are Still Ahead

Alphabet's 2026 capex range of $195 billion to $205 billion implies, by our math, $57 billion to $62 billion a quarter for the rest of the year, well above the record $44.9 billion it spent in the second quarter.

Alphabet raised the range in July, from $180 billion to $190 billion. Ashkenazi said the increase was "primarily due to an acceleration in the delivery of capacity to meet growing demand," and repeated that capex should "increase significantly in 2027." About 60% of second-quarter technical infrastructure spending went to servers and 40% to datacenters and networking.

That second-half pace rests on $80.6 billion of first-half spending, by our math. Our [Hyperscaler Capex Tracker](https://www.thealphaagentic.com/hyperscaler-capex-tracker/) compares Alphabet with Microsoft (NASDAQ: MSFT), Meta (NASDAQ: META) and Amazon (NASDAQ: AMZN).

![Bar chart of Alphabet quarterly capex vs. operating cash flow, Q2 2025 to Q2 2026](https://storage.ghost.io/c/b0/f1/b0f115e2-04db-4451-bca9-8288bfdeb3a5/content/images/2026/10/alphabet-q3-2026-earnings-preview-capex-cash-flow-v2.png)

Capex rose to $44.9 billion in Q2 2026, above operating cash flow of $39.1 billion. By our math, the 2026 range implies $57 billion to $62 billion a quarter in the second half. Source: Alphabet earnings releases. Chart: Alpha Agentic

**Commitments beyond capex:** The [second-quarter 10-Q](https://www.sec.gov/Archives/edgar/data/1652044/000165204426000071/goog-20260630.htm?ref=thealphaagentic.com) lists $811.0 billion of purchase commitments and other contractual obligations, $200.7 billion of it short-term. Alphabet also backstops third-party datacenters, with maximum future payments of $7.6 billion in financial guarantees and $43.8 billion in credit derivatives. It has agreed to provide an estimated $24.1 billion more, subject to final terms with datacenter providers.

## Free Cash Flow and Funding

Alphabet's free cash flow was negative $5.9 billion in the second quarter of 2026, and CFO Anat Ashkenazi said it "will remain under pressure."

**Equity:** In June, Alphabet sold Class A and Class C shares and mandatory convertible preferred stock for $49.6 billion of net proceeds, for uses that include AI infrastructure capex. It also set up a $40 billion at-the-market program, mainly to meet tax obligations on employee equity grants. It had sold no shares under it by June 30.

**Debt:** Alphabet raised $20.3 billion of senior notes in the second quarter, then [closed $25 billion more](https://www.sec.gov/Archives/edgar/data/1652044/000119312526342390/d171253d8k.htm?ref=thealphaagentic.com) on Aug. 10, due 2028 to 2066\. Long-term debt was $98.2 billion on June 30\. Cash and marketable securities were $242.5 billion, including $87.1 billion of marketable equity securities, mostly SpaceX shares.

**Peer contrast:** Meta [launched about $35 billion of stock offerings](https://www.thealphaagentic.com/meta-35-billion-stock-offering-ai-capex/) on Oct. 26 and plans an ATM of about $60 billion, after its free cash flow [turned negative in the third quarter](https://www.thealphaagentic.com/meta-q3-2026-earnings-results/). Alphabet moved earlier.

## TPUs and the Supply Chain

Alphabet delivered TPU systems to customer datacenters for the first time in the second quarter of 2026, and its 10-Q says "the significant majority" of revenue from those agreements will be recognized in 2027.

**TPU system sales:** The 10-Q says Alphabet has signed "a limited number of agreements" to supply the systems. Ashkenazi said these sales are in the Cloud backlog. CEO Sundar Pichai said Alphabet is increasingly looking at putting TPUs in customers' datacenters "or in other data centers, like the project we are doing with Blackstone." Alphabet gave no terms for the Blackstone (NYSE: BX) project.

**Read-across:** Google Cloud also sells Nvidia capacity, including the Vera Rubin platform, so Alphabet's spending feeds both its own chips and Nvidia's. Alphabet's filings do not name TPU design or foundry partners. The clearest public link is Anthropic's S-1, which ties Broadcom (NASDAQ: AVGO) leases to TPU-based compute.

## What Anthropic's S-1 Adds

Anthropic's S-1, filed Oct. 26, 2026, discloses a non-cancelable minimum spend of about $114.5 billion on Google cloud services from April 2026 to July 2033.

Anthropic proposes to list on Nasdaq as ANT. Its [S-1](https://www.sec.gov/Archives/edgar/data/2130357/000162828026067168/anthropicpbc-sx1.htm?ref=thealphaagentic.com#ica694c859b8e458dbf6a73f56dde9d42%5F2979) also details further TPU compute, Broadcom leases and Google financing. Our [full analysis](https://www.thealphaagentic.com/anthropic-s1-ipo-analysis-compute-commitments/) covers the filing.

| Google item in the S-1                                | Amount             | Terms                                                                |
| ----------------------------------------------------- | ------------------ | -------------------------------------------------------------------- |
| Minimum Google cloud spend                            | About $114.5B      | April 2026 to July 2033; non-cancelable; shortfall paid as a true-up |
| More TPU compute from TPU providers, including Google | Est. $125B–$150B   | Delivery 2028 to 2031; not in the obligations table                  |
| Broadcom equipment leases for TPU-based compute       | About $161.2B rent | Excludes interest; some capacity online in 2026, more from 2027      |
| Google 2026 note purchase agreement                   | Up to $20.0B       | Undrawn at June 30; draws tied to compute and revenue conditions     |
| Google option at the IPO                              | Up to $10.0B       | Class N stock at the IPO price; reduces the note facility            |

*Source: Anthropic S-1, MD&A, contractual obligations and note purchase agreements.*

**Why it matters for Alphabet:** One customer has committed at least $114.5 billion to Google over about seven years. Alphabet does not name backlog customers, so it is not clear how much of that sits in the $514 billion. Google also invested $10.0 billion in Anthropic's Series H in May, and its note facility caps Google's ownership at 14.99% unless Google waives the cap.

**The circularity:** Google is Anthropic's supplier, investor and potential lender. Claude is sold through Google's Gemini Enterprise Agent Platform, yet the S-1 names Google as a primary competitor. A weak Anthropic would leave Google exposed as both vendor and holder.

## Earnings Per Share: Separate the Gains

Investment gains accounted for $6.26 of Alphabet's $9.11 of diluted EPS in the second quarter of 2026, so by our math EPS without those gains was about $2.85, against about $2.19 in the third quarter of 2025, the year-ago quarter for today's results.

Investment marks have swollen Alphabet's net income. The second-quarter boost came from $99.0 billion of equity gains, which the 10-Q attributes mainly to unrealized gains "from SpaceX and a private company." Investment gains added $2.35 to EPS in the first quarter and $0.68 in the third quarter of 2025.

| GOOGL, $ per diluted share | Reported EPS | Added by investment gains | Without gains (our math) |
| -------------------------- | ------------ | ------------------------- | ------------------------ |
| Year ago(Q3 2025)          | 2.87         | 0.68                      | 2.19                     |
| Last quarter(Q2 2026)      | 9.11         | 6.26                      | 2.85                     |

*Source: Alphabet Q2 2026 and Q3 2025 earnings releases. "Without gains" is reported EPS minus the per-share effect of investment gains.*

**The SpaceX mark could cut the other way:** By our math, Alphabet held $94.1 billion of SpaceX shares at June 30: $80.0 billion with short-term resale restrictions and $14.1 billion restricted through the third quarter of 2027\. SpaceX shares closed Sept. 30 at $150.86, down about 12% from $170.86 on June 30\. If the stake was unchanged, that points to a mark-down this quarter, not a gain. The actual figure will depend on how Alphabet values restricted shares and on its other holdings.

## The Bull Case and the Bear Case

The bull case for Alphabet rests on 82% Cloud growth in the second quarter of 2026 and $242.5 billion of cash and marketable securities; the bear case rests on capex running above operating cash flow and $811 billion of commitments.

**Bull case:** Alphabet says supply, not demand, is the constraint. Cloud revenue growth reached 82% in the second quarter of 2026, up from 32% in the [second quarter of 2025](https://www.sec.gov/Archives/edgar/data/1652044/000165204425000056/googexhibit991q22025.htm?ref=thealphaagentic.com), and its operating margin rose about 15 points over the same year. TPU system sales open a hardware revenue line that mostly lands in 2027\. Alphabet still holds $242.5 billion of cash and marketable securities, and its August notes carried expected ratings of [Aa2 and AA+](https://www.sec.gov/Archives/edgar/data/1652044/000119312526338750/d159970dfwp.htm?ref=thealphaagentic.com).

**Bear case:** Capex now exceeds operating cash flow, and the second half is set to be bigger. Alphabet does not disclose backlog concentration, and at least one large customer, Anthropic, is funded partly by its cloud suppliers, Google included. And $811 billion of commitments plus tens of billions in datacenter backstops leave Alphabet holding obligations if demand cools.

## The Alpha Take

For Alphabet's Oct. 28 report, the open question is how fast the $514 billion Cloud backlog converts to revenue, not whether demand exists.

The guidance implies a record capex quarter now, while TPU system revenue mostly arrives in 2027 and the full-rate SpaceX bill starts in the fourth quarter. That mismatch could make the third quarter look like the most expensive point in the cycle.

For suppliers, the signal is 2027\. A large capex increase confirms another year of orders for TPUs, Nvidia systems, memory and power. Paired with faster backlog conversion and steady Cloud margins, it would suggest the build-out is funding itself. Paired with more outside capital and more backstops, it would move more of the risk onto the balance sheet.

## What to Watch

Alphabet will post third-quarter 2026 results before its 4:30 p.m. ET call on Wednesday, Oct. 28; these are the second-quarter benchmarks to measure them against.

**Revenue:** Total revenue against the $128.18 billion LSEG consensus, and Cloud revenue against $29.57 billion.

**Google Cloud:** Growth against 82% in the second quarter, and the operating margin against 35.6% as bridge capacity lands.

**Backlog:** The new total against $514 billion, and whether "just over 50%" within 24 months holds.

**Capex:** Third-quarter spending against the $57 billion to $62 billion quarterly pace implied by the range, any change to $195 billion to $205 billion, and a first 2027 figure.

**Free cash flow:** Whether it stays negative, and any new debt, equity or ATM use.

**TPUs:** Revenue from system sales, new outside customers, and any word on Anthropic or the Broadcom-linked capacity.

**Other income:** The size and sign of investment marks, including SpaceX, before reading EPS.

**The 10-Q:** Purchase commitments against $811.0 billion and datacenter backstops against $51.4 billion.