Google Earnings Call: Gemini Monthly Active Users Reach 1 Billion, But Capital Expenditures Expected to Increase Significantly Next Year

On October 29, Google's parent company Alphabet held a conference call after releasing its Q3 2026 earnings report. The company reported revenue of $127.6 billion for the quarter, a 25% year-over-year increase, with an annualized revenue run rate reaching $500 billion. Google Cloud revenue grew 103% year-over-year to $30.7 billion. However, both revenue and profit slightly missed Wall Street expectations, leading to a stock price drop of about 9% to 10% in after-hours trading following the earnings announcement.

During the call, CEO Sundar Pichai stated that the company is driving momentum across its business lines with a full-stack AI strategy. He noted that AI investments have increased usage and query growth in the search business, achieving the highest year-over-year query growth rate in nearly five years, with strong growth in commercial queries as well. The company is creating a seamless experience that integrates AI Overviews, AI Mode, and traditional search, resulting in user queries that are longer, more personalized, and feature more modalities.

Pichai also introduced progress on AI products: the Gemini app has reached 1 billion monthly active users, making it the fastest-growing product in Google's history; the first-party model API processes nearly 32 billion tokens per minute, a 40% increase quarter-over-quarter, and more than quadrupled compared to a year ago. The company officially announced the launch of the next-generation cutting-edge model, Gemini 4 Carbon, which has shown leading performance in several evaluations, particularly in cybersecurity and long-term task capabilities. The Gemini 4 Argon, launched two weeks prior, has also demonstrated rapid adoption. Additionally, the company announced progress on the world model Genie 4.

In terms of business segments, management mentioned that Google Services revenue grew 11% to $96.3 billion, with search and other advertising revenues increasing by 12% year-over-year, and YouTube advertising revenue rising approximately 9% to $11.2 billion. YouTube Music and Premium subscribers (including trials) have exceeded 150 million. The rapid growth of the cloud business is primarily driven by strong demand from enterprises for AI infrastructure, AI solutions, and TPU systems.

Despite the management's positive tone, concerns remain regarding profitability and cash flow. The net profit attributable to common shareholders for the quarter was $26.2 billion, a year-over-year decline, primarily impacted by losses from equity securities investments (with related losses of approximately $8.7 billion for the quarter). Operating profit increased by 30% year-over-year to $40.6 billion, with an operating margin rising to 31.8%, but free cash flow turned negative.

Capital expenditures remain high, with CFO Anat Ashkenazi stating that the company expects capital expenditures to increase significantly in 2027. At the same time, the company maintained its full-year capital expenditure guidance for 2026, still in the range of $195 billion to $205 billion.

Pichai expressed confidence in long-term demand, stating that the company is accelerating capacity building and expects the pace of model iterations and product rollouts to further accelerate in the next 12 months. Other businesses, such as Waymo, continue to advance, with autonomous driving mileage exceeding 300 million miles. Market reactions have been more cautious. Investors recognize the rapid growth of the cloud business and the impact of AI on search, but they express concerns about the slightly lower-than-expected revenue and profit, high capital expenditures, and pressure on free cash flow. The management's optimistic statements about the AI outlook did not fully dispel market concerns about the short-term return on investment pace.

This content is provided for general informational purposes only and doesn't constitute financial, investment, legal, or tax advice. Any events, rewards, online promotions, or related information mentioned herein should not be considered a recommendation, solicitation, or invitation to purchase, sell, trade, or otherwise deal in any crypto assets. Crypto assets are highly volatile and may result in loss. The availability of WEEX services, products, and related events may vary by region. You are responsible for ensuring that your participation is in accordance with applicable local laws and regulations.