Alphabet Inc. · Q2 2026 call

Demand for our models is translating to strong token usage across developers and enterprise customers, and we continue to be supply constrained, a sign of momentum and rapid adoption.

Since expanding AI Mode globally last October, we have surpassed 1 billion monthly active users. Just like AI Overviews, AI Mode is driving an incremental increase in Search queries overall, and we are now sending billions of clicks to websites every week through AI features in Search.

Take AI Max. It's out of beta, and 500,000 advertisers have already adopted it.

Those who adopt our AI-powered campaigns like AI Max or Performance Max, see an average of 15% more conversions or value on Search at a similar ROAS.

We continue to be encouraged with monetization performance on queries that show AI Overviews, even as we've expanded AI Overviews to more commercial queries.

We had negative free cash flow of $5.9 billion in the second quarter, driven by our investments in CapEx. Free cash flow was $53.3 billion for the trailing 12 months.

Google Cloud's backlog increased by more than $50 billion sequentially, reaching $514 billion in the second quarter. The increase was driven by strong demand for our enterprise AI offerings.

The majority of the backlog is related to typical GCP contracts from a broad mix of customers, and we expect to recognize just over 50% of the total backlog as revenue over the next 24 months.

in Q3, we will begin lapping an acceleration in Search performance that began in the third quarter last year.

Given the supply-constrained environment, we plan to expand the use of third-party capacity in Q3 as a bridging strategy while we build out more internal capacity. This strategy allows us to keep growing our customer base and capture greater overall value. However, it will create modest margin pressure in the near term as we utilize this capacity.

Moving to investments, we are updating our full-year 2026 CapEx guidance range to $195 billion-$205 billion, up from our previous estimate of $180 billion-$190 billion. The increase in the range is primarily due to an acceleration in the delivery of capacity to meet growing demand. As we previously shared, we continue to expect our CapEx to increase significantly in 2027 and will provide more details at a later date.

Finally, we expect the free cash flow will remain under pressure, driven by our investments in technical infrastructure, which enables us to capitalize on the AI opportunity and continue to drive attractive returns.

I do think, it feels like we are in very early innings of what feels like secular shift across multiple areas.

I would say, from a ROIC standpoint, I think, we are taking a full stack approach. We are seeing momentum across consumers and enterprises and developers and so on. It feels like if anything, over the past year, we've gotten more bullish on the opportunities ahead.

We're still in a supply constraint environment. I think we've said this now for multiple quarters in a row, we are seeing very strong demand, both from external cloud customers as well as across the business.

There are many attributes on which we are still at the frontier. There are areas where we've acknowledged we need to improve. Coding and agentic coding is an example of that, and the teams are very focused on it.

In terms of the frontier, we are both very committed and very confident of being at the frontier. For the next generation of frontier, you're going to need much larger base models. We are now training Gemini 4, and we're being very ambitious with it.

We have expanded our debt portfolio quite significantly over the past 12 months. If you've seen a year ago, we were at about $16 billion, and we went to about $100 billion across multiple currencies and geographies, so we're expanding that portfolio.

At this point, we're not planning to go back to the equity markets, with the exception of, as you recall, part of our equity offering was the ATM or at the market offering that we will do to address the stock-based comp or the tax on SBC, which we'll do for some period of time.

our first priority is making sure we are allocating what we need to compete at the frontier in terms of AGI development. That is the foundation for everything we do.

We'll continue to ramp up throughout 2026, you'll see the vast majority of the revenue from that agreement come through in 2027.

Picking up pace and releasing models almost at a monthly cadence is part of our roadmap as we are building Gemini 4 as well.

On the TPU margins, we don't break out margins for any specific products or infrastructure component. Certainly, there are benefits from designing and manufacturing our own chips. The way to think about it is this is an expansion of our total addressable market, so it expands the opportunities by providing solutions to customers that need those systems in their data centers.

on the margin, there are very, very large customers of ours on Cloud who we are trying to support them through this extraordinary moment. The incremental opportunities they are bringing to us, while a short-term cost over a few months may be very high, in the lifetime of the deal, as we bring more capacity on, is highly ROI positive.

our 17% year-over-year growth rate in the Q2 Search and other revenues was really driven by many parts of our business working well together and very, very deep Gemini integration.

I think our compute capacity investments in 2027, to the first question I answered, I think we are seeing strong demand indicators, including long-term deals, the existing deals which we have, which are renewing with exceptional demand on a moving forward basis. We are using all that to plan and invest accordingly. I think if anything, the dynamics look healthier than where we were about a year ago, that's what gives us the confidence to undertake those investments.