Google Cloud surges 63% as Amazon's AI spending crushes free cash flow

Alphabet and Amazon have announced their latest quarterly earnings today, and both companies reported better-than-expected results, thanks to strong demand for cloud and AI services.

Alphabet reported revenue of $109.9 billion for Q1 2026, up 22% year-over-year. Operating income rose 30% to $39.7 billion, while operating margin increased to 36.1%. Net income jumped 81% to $62.6 billion (including $37 billion from Anthropic's equity value gain).

The biggest highlight was Google Cloud. Revenue from the Cloud business increased 63% year-over-year to $20.0 billion, driven by Google Cloud Platform growth across enterprise AI solutions, enterprise AI infrastructure, and core GCP services. Google Cloud operating income also increased significantly from $2.2 billion last year to $6.6 billion in Q1 2026. Among all the large hyperscalers, Google Cloud is growing at the fastest rate.

Google Services remained Alphabet’s largest business, with revenue increasing 16% to $89.6 billion. Google Search & other revenue increased 19% to $60.4 billion, YouTube ads revenue grew 11% to $9.9 billion, and Google subscriptions, platforms, and devices revenue increased 19% to $12.4 billion.

Alphabet CEO Sundar Pichai said the company’s AI investments are now “lighting up every part of the business.” He highlighted that Search had a strong quarter, Google Cloud backlog nearly doubled sequentially to more than $460 billion, paid subscriptions reached 350 million, Gemini Enterprise paid monthly active users grew 40% quarter-over-quarter, and Waymo has crossed 500,000 fully autonomous rides per week.

Amazon also delivered a strong quarter. The company reported Q1 2026 net sales of $181.5 billion, up 17% from $155.7 billion a year ago. North America sales increased 12% to $104.1 billion, International sales increased 19% to $39.8 billion, and AWS sales increased 28% to $37.6 billion.

Amazon’s operating income increased to $23.9 billion, compared with $18.4 billion in Q1 2025. AWS remained the biggest profit driver, with its operating income rising to $14.2 billion, compared with $11.5 billion a year ago. Surprisingly, net income increased to $30.3 billion, but it included $16.8 billion in pre-tax gains from its investments in Anthropic.

While operating cash flow increased 30% to $148.5 billion, free cash flow fell to just $1.2 billion, down from $25.9 billion a year ago. This is primarily because of heavy investments Amazon is making in AI infrastructure.

Amazon also highlighted its recent deals with OpenAI, Anthropic, and Meta. OpenAI has committed to consume around two gigawatts of Trainium capacity through AWS infrastructure beginning in 2027. Anthropic will consume up to five gigawatts of current and future Trainium chips to train and power its AI models.