Alphabet second quarter 2026 earnings explained: segments, EPS and valuation multiples

Alphabet reported its second quarter 2026 results on July 22, 2026. It has since reported its third quarter, on October 28, 2026, and a separate Dalsna Finance article covers those results. This article looks back at the three months ended June 30, 2026 and compares them with the first quarter. Revenue rose 9.0% from the first quarter (Dalsna Finance calculation) and operating income edged up, while GAAP net income jumped because of gains on shares Alphabet holds in other companies. Every figure is sourced and dated, and every number worked out by us is labelled as a Dalsna Finance calculation. ^[1][2][3]

Alphabet in brief

Alphabet Inc. is the parent company of Google. It is best known for Google Search and YouTube, and it also sells cloud computing to businesses through Google Cloud. Its Class A shares trade on the Nasdaq under the ticker GOOGL and its Class C shares under GOOG. Class B shares are not listed. Alphabet had 198,933 employees at June 30, 2026. On March 11, 2026 it completed its purchase of Wiz for $29.5 billion, after purchase price adjustments, and Wiz now reports inside Google Cloud. ^[1][4]

"Our AI investments are redefining what's possible across every part of our business," chief executive Sundar Pichai said in the release. He also said Gemini models now process 22 billion API tokens per minute, that the Gemini app has 950 million monthly active users and that nearly 90% of the Fortune 100 use Gemini Enterprise. These are the company's own figures, as stated in its release. ^[1]

Three segments

Alphabet reports three segments. Google Services covers ads, Android, Chrome, devices, Google Maps, Google Play, Search and YouTube. Most of its money comes from advertising. The rest comes from subscriptions to YouTube TV, YouTube Music and Premium, NFL Sunday Ticket and Google One, from apps and in app purchases and from devices. Google Cloud sells infrastructure and platform services, applications and other services to businesses, and its product revenue comes mainly from selling TPU systems. Other Bets groups smaller businesses whose revenue comes mainly from autonomous transportation services and internet services. ^[1]

Some costs are not charged to any segment. Alphabet calls them Alphabet level activities. They are mainly shared AI research and development on its general AI models, plus philanthropy and corporate costs such as finance, human resources and legal. They came to $5,789 million in the second quarter against $5,391 million in the first. Hedging gains and losses on revenue also sit outside the segments. ^[1][2]

Google Cloud grew fastest. Its revenue rose to $24,768 million from $20,028 million in the first quarter and its operating income to $8,814 million from $6,598 million. Against the second quarter of 2025 Cloud revenue rose 82%, as reported by Alphabet. The quarterly report explains that year over year rise mainly by growth in Google Cloud Platform, largely infrastructure and platform services, and notes that the second quarter of 2026 was the first in which Alphabet booked revenue from selling TPU systems. Google Services operating income slipped from the first quarter even as its revenue grew. It includes a $1.5 billion legal charge, covered further down. ^[1][2][4]

Where Google Services revenue comes from

Inside Google Services, Search and other was $63,271 million in the second quarter, up $2,872 million from the first, and YouTube ads brought in $11,055 million, up $1,172 million (Dalsna Finance calculation). Against the second quarter of 2025, Alphabet reported growth of 17% in Search and other, 13% in YouTube ads and 15% in subscriptions, platforms and devices. ^[1][2]

The quarterly report gives reasons for the year over year rises, not for the change from the first quarter. For Search and other it points to several linked factors: more search queries as people adopt and use it on mobile devices, more spending by advertisers and improvements to ad formats and delivery. YouTube ads grew mostly through direct response advertising and then brand advertising, with advertisers spending more on both. Subscriptions, platforms and devices grew primarily on subscriptions, with the gain coming mainly from growth in paid subscriptions to YouTube services and Google One. ^[4]

The numbers, quarter over quarter

Revenue was $119,796 million in the second quarter, against $109,896 million in the first. Against the second quarter of 2025 it rose 24%, or 23% in constant currency, as reported by Alphabet. Gross profit, which is revenue minus the direct cost of what was sold, rose 7.6% to $73,853 million. Operating income, which also takes off research, selling and administrative costs, rose 2.7% to $40,770 million. Net income under GAAP, the standard US accounting rules, rose to $112,193 million from $62,578 million (Dalsna Finance calculation for gross profit and the changes). ^[1][2]

In June 2026 Alphabet issued mandatory convertible preferred stock, which it did not have at the end of 2025, and its dividends come before common stockholders are paid. Net income available to common stockholders, the figure behind EPS, was $112,107 million in the second quarter after $86 million of preferred dividends, and $62,578 million in the first. Profit margin is that figure as a share of revenue: 93.6% in the second quarter against 56.9% in the first (Dalsna Finance calculation: $112,107 million divided by $119,796 million, and $62,578 million divided by $109,896 million). The operating margin, operating income divided by revenue, was 34.0% against 36.1%. ^[1][2]

Most of the jump in net income came from below the operating line. Other income was a net gain of $97,983 million in the second quarter, which Alphabet said was primarily net unrealized gains on its equity securities. Unrealized means the holdings rose in value but were not sold. The quarterly report ties the $99.0 billion gain on equity securities mainly to unrealized gains on its SpaceX shares and on a private company. Alphabet said that gain raised net income by $77.1 billion and diluted EPS by $6.26 after its effect on taxes. The first quarter also had large other income, $37,716 million. ^[1][4][2]

One legal charge sits inside the quarter. Alphabet accrued $2.1 billion for a July 2026 decision of the Stockholm Patent and Market Court in a case brought by PriceRunner, a Klarna subsidiary, over how Google showed and ranked shopping search results. The quarterly report puts the $1.5 billion of principal damages in general and administrative expenses in Google Services and $581 million of interest and costs in other income. Alphabet has appealed. ^[4]

Cash and funding

Operations brought in $39,069 million of cash in the second quarter, down from $45,790 million in the first, while purchases of property and equipment rose to $44,924 million from $35,674 million. The quarterly report links the rise in purchases over the first half, against a year earlier, mainly to investment in technical infrastructure. Free cash flow, which is operating cash minus those purchases, turned into an outflow of $5,855 million. ^[1][4]

Alphabet also raised money. In June 2026 it sold Class A and Class C shares and mandatory convertible preferred stock for combined net proceeds of $49.6 billion, which it said it would use for general corporate purposes including capital spending on AI infrastructure. It set up an at the market program to sell up to $40.0 billion of Class A and Class C shares over time and had sold none by June 30. It also issued senior unsecured notes for net proceeds of $20.3 billion in the quarter. Its cash flow statement shows no cash paid for share repurchases in the quarter. ^[1]

Earnings per share

Earnings per share, or EPS, is profit divided by the number of shares. The diluted figure also counts shares that could be created from stock awards and similar instruments. Alphabet reported diluted EPS of $9.11 for the second quarter and $5.11 for the first. Dividing net income available to common stockholders by the diluted share count gives the same figures. ^[1][2]

Alphabet reports no adjusted net income and no adjusted EPS. Its own non GAAP measures are free cash flow and constant currency revenue. So this article uses free cash flow as its second measure and calls it by that name. Per share, on the 12,230 million shares on the cover of the second quarter report, it was $0.83 in the first quarter and an outflow of $0.48 in the second (Dalsna Finance calculation). It is a cash measure, not earnings. ^[1][4]

What the market values Alphabet at

Market capitalization, or market cap, is what the stock market values the whole company at: the share price times the number of shares. Alphabet's Class A shares closed at $279.84 on Friday, October 30, 2026, as reported by StockAnalysis. The cover of its second quarter report lists 12,230 million shares of Class A, Class B and Class C stock outstanding as of July 15, 2026. Counting all three classes at the Class A price gives a market cap of about $3.42 trillion (Dalsna Finance calculation). Class C shares trade at their own price and Class B shares are not listed, so this is an approximation. The preferred stock is not counted. ^[5][4]

Keep the timing in mind. The price is from after the third quarter results came out, so it reflects news that is not in this article. The earnings behind every multiple stop at June 30, 2026, and the share count is the one on the second quarter report's cover. The multiples below therefore set a later price against the second quarter's numbers, and are not a current valuation on the latest results. ^[5][3][4]

Six valuation multiples

The price to earnings ratio, or P/E, is market cap divided by a year of earnings. It shows how many dollars the market is paying for each dollar of yearly profit. Annualised means one quarter multiplied by four. On that basis Alphabet has a P/E of 7.6 (Dalsna Finance calculation: $3,422.4 billion divided by $112,107 million times 4, which is $448,428 million). That is low because the second quarter's earnings were swollen by the equity gains, and multiplying them by four assumes gains of that size every quarter. ^[1][5][4]

The second measure divides market cap by free cash flow. We call it market cap to free cash flow, because free cash flow is not earnings. On the second quarter annualised it is not meaningful, because the quarter's free cash flow was an outflow, and dividing by a negative number says nothing about how expensive the shares are. ^[1]

A forward P/E uses an estimate of future earnings. Barchart reported on October 21, 2026, after the second quarter results and before the third, that analysts expect EPS of $20.60 for 2026. Multiplying that by the same 12,230 million shares gives estimated earnings of about $251,938 million and a forward P/E of 13.6 (Dalsna Finance calculation on an estimate, analyst consensus as reported by Barchart). Diluted EPS for the first half of 2026 was already $14.24, as reported by Alphabet, so the two reported quarters, with their large gains on equity securities, make up much of that $20.60 estimate. We found no published estimate of free cash flow, so there is no forward market cap to free cash flow. ^[6][5][4][1]

A trailing P/E, sometimes called a historical P/E, uses the last four reported quarters. Net income available to common stockholders over the twelve months to June 30, 2026 added up to $244,119 million, which gives a trailing P/E of 14.0 (Dalsna Finance calculation). The first half of 2026 included $135,699 million of other income, mostly gains on equity securities. Alphabet reports trailing free cash flow of $53,273 million, which gives a trailing market cap to free cash flow of 64.2 (Dalsna Finance calculation). ^{[1][2][7][5][4]}

The last four quarters

Alphabet reports free cash flow for each of the last four quarters in its second quarter release. Net income for the third quarter of 2025 is not in the documents used here on its own, so it is worked out as net income for the full year 2025 minus the first half of 2025 and the fourth quarter (Dalsna Finance calculation). Alphabet had no preferred stock before June 2026, so net income in the first three of these quarters is all available to common stockholders. ^[1][7][2]

Two base cases: the second quarter held flat for a year

Suppose revenue stayed at the second quarter's level for a full year, with no growth and no decline: $119,796 million times 4, or $479,184 million. The first base case keeps the 93.6% profit margin, which gives earnings of $448,428 million, or $36.67 per share on the cover share count. This case is simply the latest quarter annualised, so at the annualised P/E it returns the October 30, 2026 close of $279.84 by construction. The other cells only show how the price moves when the same earnings are given a different multiple. ^[1][5][4]

That margin is far from normal. Second quarter net income was lifted by items below the operating line, mainly the $99.0 billion gain on equity securities. So the second base case uses the 34.0% operating margin, which leaves out interest, taxes and other income altogether: $163,080 million a year, or $13.33 per share. Operating income is counted before tax, so this is not net income. The $1.5 billion PriceRunner charge sits inside operating income, but Alphabet put a figure on it without calling it a one time item, so it is pointed out here and not taken out. ^[1][4]

There is no free cash flow base case. The second quarter's free cash flow was an outflow, so held for a year it stays negative and no multiple can turn it into a share price. The market cap to free cash flow multiples do not apply to earnings, so they are left off the grid. ^[1]

What came next

Alphabet released its third quarter results on October 28, 2026. They are covered in a separate Dalsna Finance article, which is the place to look for whether the equity gains held and whether operating cash caught up with spending on property and equipment. This article does not use any third quarter figures. ^[3][1]

Events after the quarter, as stated in the second quarter report: in July 2026 the European Court of Justice turned down Alphabet's last appeal against the European Commission's 2018 Android decision, which is now final, and Alphabet paid the fine and interest of $5.2 billion, which it had already accrued, that month. Also in July 2026 the board declared a common dividend of $0.22 per share, payable on September 14, 2026. Still open when the report was filed: Alphabet, the Department of Justice and state Attorneys General had all appealed the December 2025 final judgment in the US search case. ^[4][1]

How these figures were made: inputs come from Alphabet's earnings releases for the fourth quarter of 2025 and the second quarter of 2026 and its first and second quarter 2026 quarterly reports on SEC EDGAR, plus the dated closing price and the dated consensus report named above. Calculations use unrounded inputs and are rounded only at the end, with multiples to one decimal and per share figures and prices to the cent. ^{[7][1][2][4][5][6]}