Alphabet Inc.

Q2 2026 Earnings Call — July 22, 2026

Brian Nowak (Morgan Stanley): Thanks for taking my questions. I have two, one for Sundar, one for Anat. Sundar, with more time and Gen AI products and tools in the market and investment continuing to step up, can you just kind of give us some perspective on how your view on the size of the overall Gen AI ROIC opportunity and the timing of the ROIC has changed now versus one year ago? And then Anat, you talked quite a bit about supply capacity constraints. Even a similar question for you around forward capex. How is your budgeting philosophy and just constraints you're putting on to forward spend, how are those changing? You sort of think about the right amount to spend in 2027 to close this capacity constraint.

Sundar Pichai (CEO): Thanks, Brian. I mean, it's a good question. I do think, you know, it feels like we are in very early innings of what feels like a secular shift across multiple areas in our core information businesses, just the possibilities when I see what all you can do with the absolute. There's still a lot of work ahead to translate all that into experiences for our consumer users. You can think about end-to-end agentic experiences to really meaningfully do a lot more for them. So all of that looks like extraordinary opportunities with extraordinary returns for executing well on those opportunities. Similarly, on the enterprise side, as you can see from our demand, which is reflected in our growth rates, et cetera, again, in my conversations with many CEOs, many companies, they're all still barely scratching the early stages of what's possible here. So I think we used to talk about cloud itself, very small percentage of overall workloads and enterprises have shifted to cloud. Now think about what percentage of workloads are really AI-native and AI-enabled. It again feels like very, very early. So I would say from ROIC standpoint, I think we are taking a full-stack approach. We are seeing momentum across consumers and enterprises and developers and so on. So it feels like, if anything, over the past year, we've gotten more bullish on the opportunities ahead. I'll turn it over to Anat.

Anat Admati (CFO): Thanks for the question on how do we think about forward-looking CapEx in the context of supply constraints. So we're still in a supply constraint environment. I think we've said this now for multiple quarters in a row. And we are seeing very strong demand both from external cloud customers as well as across the business. And our goal is to invest as long as we see an attractive return on that investment as Sundar mentioned earlier. We do take a long-term view. So we take a multi-year view at what the needs are as well as focus on next year and the near term and building aggressively to meet those demands. And as you've seen, we have increased our capacity quite significantly over the past three years. The demand still outpaces that investment. And we are, just like the rest of the industry, working in a supply-constrained environment, so we're working hard to do this. We do have a benefit of having the full-stack approach, so we're able to drive operational efficiencies, technological efficiencies within our technical infrastructure organization so that we can deliver more compute. But as long as we see these attractive opportunities to invest, we will continue to invest.

Doug Anmuth (J.P. Morgan): Thanks for taking the questions, one for Sundar and one for Anat. Sundar, can you just talk about your confidence level that the Gemini models can remain at the frontier? I know you had the Gemini, the Flash model releases this week, but Google perhaps doesn't make maybe quite as much noise as some of the other leading labs or perhaps have quite the frequency of. Just curious how you'd address any concerns about that ability to continue developing leading models. And then just related, can you talk about your plans for coding and how you look to close the gap in that part of enterprise? And then Anat, just following the recent equity and debt raises, can you just help us understand how you think about optimal capital structure and how you view the cost of debt versus equity?

Sundar Pichai (CEO): Thanks, Doug. Look, I think, you know, the frontier is an incredibly dynamic space, you know, and it's fiercely moving forward at any given moment when you take a snapshot, it feels dynamic. We have had clearly frontier models. 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 agent decoding is an example of that. And I think the teams are very, very focused on it. With 3.6 Flash, and by the way, Flash is our and many more. And we see tremendous demand for it, given it generally hits a sweet spot of performance, cost, reliability, latency, et cetera. And we've incorporated Gemini and Flash particularly in our entire portfolio of solutions, be it in cybersecurity, data analytics. If you think about an area like customer service, you need really good voice quality, you need live streaming, you need the ability to reason on that. Or if you're a professional services firm, you need high quality summarization, content generation, et cetera. So Flash does very well on all of that.

In terms of agent decoding, we are iterating and you will see us make continued iterations. 3.6 Flash, for example, compared to 3.5 Flash jumped over 10 points in DeepSuite as a benchmark and it is more token efficient doing so. So we are clearly, we are using it internally, we are testing it with many customers in coding. So we see the progress just in six weeks from the prior version to the new version and you will see more continued iterations on that as well. 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. I am very excited by the progress I'm seeing internally on Gemini 4, and I'm confident people will be pleased when we are putting it outside. But we will need Gemini 4 as a larger base model to compete at that frontier level, and so we are focused on executing on that well.

Anat Admati (CFO): And on the question regarding our capital structure and recent equity and debt raise. So as we think about our investment needs, and as I said, we look at the next year and multiple years out, we first look at how much we can support based on cash from operations. And as you've seen in our results today, we continue to generate very healthy, strong cash flow from operations. So that's our first source of funding. And then we look at debt and most recently we did the equity raise. And 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 a hundred billion dollars across multiple currencies and geographies. So we're expanding that portfolio. But we also want to make sure we have a resilient, not just growth outlook, but also resilient balance sheet and a strong balance sheet, healthy balance sheet, which is the rationale behind expanding into the equity markets. 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 company or the tax on SBC, which we'll do for some period of time. But we look at those three dimensions, the cash flow from operations, debt levels and equity in a way to balance it in a way that ensures that we continue to maintain a healthy balance sheet.

Eric Sheridan (Goldman Sachs): Thanks so much for taking the questions, maybe two if I could, both on TPUs. Sundar, can you talk about some of your key learnings as you scale your TPU efforts in terms of both the demand for TPUs and how you think about balancing the external demands for TPUs versus the internal demand for custom silicon inside the organization as you look over the next couple years? And then, Anat, if I could just follow up. You made some comments in your prepared remarks about the impact of TPUs on Google Cloud. I didn't know if you could give us a little bit more granularity about the size of TPUs as a part of the revenue backlog and how to think about the revenue recognition of the potential for margin impact from TPUs in the years ahead.

Sundar Pichai (CEO): I think in terms of, first of all, we are very pleased with our TPU roadmap progress and the value in terms of performance and the edge it gives. And we obviously use it extensively. In terms of allocating TPUs, look, our first priority is making sure we are allocating what we need to compete at the frontier in terms of AGI development. And so that is the foundation for everything we do. But given the extraordinary demand, to balance the external demand, even for most cloud customers, we are using both TPUs and GPUs, mainly for serving our models. So ThinkVortex AI, Gemini Enterprise, the momentum we see, so we're using it for those purposes. To the extent people want it as infrastructure, we are balancing it by increasingly looking at opportunities to put TPUs in their data centers or in other data centers like the project we are doing with Blackstone, et cetera. So we are using that as an ability to balance and make sure we are allocating as much of the available compute for frontier model development as well as serving both our consumer business and our enterprise business in terms of first-party models.

Anat Admati (CFO): And in terms of revenue recognition and how we look at the TPU system sales, so the way to think about it is the following. When we sign the agreements that I've mentioned in the prepared remarks, they would be then reflected in the cloud backlog. Now, the vast majority of the $514 billion of cloud backlog is the GCP agreements, but the TPU system sales are reflected in that backlog. We started building inventory to be able to sell those systems. So you see that impact on the cash from operations because we built ahead, obviously as we're building that business and ramping up. And then once we start delivering the sales, generally that's when we start recognizing revenue. This quarter was a small amount of that total agreement. We'll continue to ramp up throughout 2026, but then you'll see the vast majority of the revenue from that agreement come through in 2027.

Ross Sandler (Barclays): Yeah, just back to the AI model kind of war that's going on, Sundar. Just wanted to ask about the speed of model releases and how you can potentially speed up the cadence by which Gemini is releasing models. So we all saw the third-party compute deal with SpaceX. What else are we doing to kind of speed up the pace of model releases compared to some of the other folks out there? And then you just mentioned the Flash models, which have been very successful, to your point. Do you view that as like the right end of the market to be in given how crowded the lower cost end of the model space has become? Just any thoughts on how you see all that playing out?

Sundar Pichai (CEO): Look, I mean, two things I'll say. First of all, we are, you know, we really think about the parade of frontier. You know, we want to make sure for our customers we are offering best models at various price points. So you will see us. But it's very important to us to have the best Frontier models out there, as well as models which are very performant and low cost. This is why we have Flashlight, Flash, Pro, et cetera. So we are committed to being at the full parade of Frontier. On the speed of model releases, I do think you will see us continue to pick up pace. Obviously, you've seen us come with, we announced 3.5 flash at IO, we have followed that up at 3.6 flash, and you'll see continued iterations of that model with further progress in agent decoding, etc. We are really focused, putting a lot of effort into Gemini 4. It's a very ambitious effort. We wanted to compete at the frontier level of where the frontier will be when Gemini 4 comes out. And so we are applying a lot of our compute and effort in that direction. But with that, we are creating a baseline on top of which you will see us rapidly iterate at subsequent model releases. And so picking up pace and releasing models almost at a monthly cadence is part of our roadmap as we are building Gemini 4 as well.

Michael Nathanson (Moffett Nathanson): Thanks. Thank you. Senator, just keep with the model theme of this call. Can you talk a bit about what do you think the moats are to this new model war? What is your strategic advantages that fuel your business that even if everyone gets to the same type of model capabilities, what gives you the edge to keep growing like you're doing? Anat, back to Eric's question, anything you can tell about the margin impact on TPUs going forward, right? Is it incremental margin to the core cloud margin or is it a lower margin coming through?

Sundar Pichai (CEO): Look, Michael, I mean, first of all, look, there are many, many layers at which we are providing solutions, right? I think part of what the value of our full stack approach is customers are coming to us for solutions. So if you take an area like cybersecurity or data analytics, people are deploying. People are bringing what's been in the past siloed data sources, putting it all together and having an intelligence layer on top of it with Gemini Enterprise. And so the model is just an ingredient in those solutions. So I think it's important to remember that. Then even within where you're purely on a more model consumption area, people are... you know there is what looks as models are increasingly becoming end-to-end orchestrated systems right workflows agentic workflows and to develop all this it's your ability not just to bring the compute you need to train and serve the data quality the environments you have your ability to continually improve provide customers with that peace of mind that all the data they have, their data, their trajectories are confidential to them. None of that in any way flows back to the models.

Their ability to configure and serve all this in a secure way and manage it and provision it and so on. These are big end-to-end things. This is what our Cloud business as a whole is focused on building it. We are seeing demand across all of these components. And so obviously having our own models allows us to really optimize these solutions and bring an integrated offering but we will also provide other models as part of these solutions. We also bring infrastructure as part of these solutions, et cetera and take a whole full stack approach. So I think we are very, very well positioned there.

Anat Admati (CFO): And on the TPU margins, we don't break out margins for any specific products or infrastructure component. And certainly there are benefits from designing and manufacturing our own chips. But 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. But overall, if you think about the cloud margins, obviously a really fantastic expansion of margin to 35.6%. This quarter, outstanding, strong operational discipline across the business and leveraging growth in the top line. And as you think about Q3 and through the remainder of the year, and I've mentioned some of the prepared remarks, given the supply constraint environment we're in, we are planning to expand the use of third-party capacity in Q3 as a bridging strategy while we continue to build out internal capacity. That capacity, given the cost of that capacity, will put some pressure on operating margins for cloud. And then the last item we mentioned in the past was the integration of Wiz does create some headwind here in the near term in 2026 related to the acquisition.

Mark Shmulek (Bernstein): Yes, thanks for taking the questions. Anat, just on these third-party deals and kind of the bridge in capacity, is there a particular objective where the constraints are most severe or is it really broad-based? And I guess, you know, stepping back a bit and thinking about capacity allocation across the businesses, has that changed at all or is there a way to contextualize how you're now thinking about the trade-off between allocating compute to search versus model training versus for the GCP business?

Anat Admati (CFO): Mark, I can comment on it. Like, you know, look again on allocation. I think, look, the baseline with which we start is what it takes to, you know, continue AGI development at the frontier. Obviously, you know, the priors on that are just based on where the model frontier moves. And so we start with that as a baseline. And beyond that, we want to obviously be prioritizing our core product areas like search, YouTube, et cetera, as well as cloud. And within cloud, we are prioritizing the compute to make sure we can serve our models in the context of Vertex and Gemini Enterprise and our core solutions, be it data analytics and cybersecurity, et cetera, right? So our core serving for our core products across consumers and enterprises where the compute is primarily going, and that's how we think about it. I think on the bridge deal, the main thing I would say is, look, there are on the margin, there are very, very large customers of ours on cloud who we are trying to support them through this extraordinary moment and 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, right? So those are factors we are taking into account.

Ron Jose (Citi): Great, thanks for taking the question. Maybe I'll switch topics somewhat and fill up, ask you a little bit more about monetization from a search and YouTube perspective. Just given the greater signal we have with AI searches and then you talked about YouTube strength, talk to us a little bit more on how advertisers are leveraging the greater personalization and targeting that Google has to drive this ROAS. And, you know, a question we often get is Google is at size and scale. We're still growing 17%. Any reasons what's driving that all-time high on searches?

Sundar Pichai (CEO): Yes, thank you so much for the question. Look, 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. Maybe to zoom out for a second, all the major verticals contributed to the growth. Retail drove the greatest contribution I managed, as followed by really meaningful contributions from finance, tech, Media Entertainment, and so on. I think it's really important to understand that Gemini supercharges our ability, and this goes specifically to your question, to understand what people are looking for and match the right ads. So we're applying Gemini models really across our entire ads infrastructure, whether it's ads quality, advertising tools, ads and new AI experiences, and we're really deeply integrating Gemini into the customer tools to make the campaigns more efficient, which comes on top of this. And then we have our AI powered campaigns like AI Max that help advertisers actually adapt and find the opportunities beyond keyword. Again, that's an ability for us to go deeper and target better.

And AI Max continues to unlock, we mentioned this, billions of net new searches that weren't really monetizable before. And then on the YouTube side, high level, the ads growth was driven by direct response and brand advertising. I shared earlier, we continue to see a lot fermenting in the living room. We have a really exciting ads roadmap as well ahead of us on the brand side, on the direct response side. Demand and insurance remain really interesting opportunities here. Again, this has targeting components to it, obviously. And we continue to innovate really heavily in direct response with shoppable ad formats in the living room, which will help us drive strength in retail as well.

Ken Gorolsky (Wells Fargo): Thank you very much. Two questions, please. First, how would you assess the forecasted returns on compute capacity investments in 27 compared to prior years, 25 and 26, in light of the supply chain constraints and Supply Chain Inflation we're seeing? I'm curious as to how you think about the return profile of 27 and kind of future investments versus past investments in capacity. And the second one, a little different topic here. When you think about Waymo, what are the key factors you would consider when evaluating a change in corporate structure for Waymo? I know you've previously been reticent to talk about this, but the business is scaling. Clearly, there's leadership there and has a lot of momentum. Under what conditions would it make sense for Waymo to live outside of Alphabet?

Anat Admati (CFO): On your first question, if I understand it, we are working off a disciplined ROIC framework here. Obviously, to the extent that our input costs going up to us, we reflect that in our ability to price our solutions and see returns there. So all of that is factored into I think our compute capacity investments in 27, I think 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. And so we are using all that to plan and invest accordingly. And so I think if anything, the dynamics look healthier than where we were about a year ago. And so that's what gives us the confidence to undertake those investments.

Sundar Pichai (CEO): On Waymo, look, I think we are really focused on executing and scaling up Waymo. We have set it up with our bed structure and given the team a lot of support. Alphabet has continued I think our ability to think and plan long-term and invest in the business and give them that long-term roadmap, the confidence in undertaking a long-term roadmap and scaling up, I think is all hugely valuable. We're really focused on scaling the business right now and executing to that extraordinary potential and that's what we're focused on.

Sridhar Kajuria (Wolf Research): Okay, thanks a lot for taking my questions. Could I please ask you two? One is on TPU long-term strategy. Longer term, is it fair to think that as TPU sales scale, you'd build a merchant silicon business with a software stack that goes with it? And second is on YouTube revenue. Given how strong engagement is, what are some of the factors that could drive accelerating growth rate at YouTube on a go-forward basis?

Sundar Pichai (CEO): You know, maybe I'll answer the first one and Philip can broadly talk about YouTube revenue growth as well. On the first one, on TPUs, look, I think we've been operating with TPUs for a while. A lot of our cloud serving is done on TPUs. And we are also seeing strong demand for TPUs as standalone systems from other customers. And so obviously the industry has constraints too. So we have to plan and we allocate on a forward-looking basis along the principles I spoke about earlier. So I don't want to project out too far into the future there, but I do think we are, you know, obviously we will scale up based on the opportunities we see and the demand we see, commensurate with the constraints that exist and the allocation needs we have for frontier model development, making sure we can serve our consumer businesses and enterprise businesses well.

Philip (YouTube): Yes, thank you so much. So look, I mentioned it, the drivers of YouTube ads revenue growth. I think there's a lot of things we're actually excited about when we look at our ads roadmap here. In brand, we see ongoing opportunities on connected TVs in the living room. We're building tools to help advertisers find creators, scale across screens and then measure the results. We have a slate of new and returning creator shows that are coming exclusively to YouTube. We see opportunities in direct response, particularly with demand gen. Demand gen and shorts, I mentioned it, remain a really interesting opportunity here to expand our base to more small and medium advertisers across more verticals, shorter videos. Actually, this important one, create more opportunities for less disruptive ads, increasing the overall ad effectiveness. So we're going to continue to see a lot of innovation, in my opinion, and direct response with shoppable ad formats in the living room, which, again, we mentioned that drives retail strength. We announced a few other formats here at Brandcast. We announced Buy with Google Pay to enable CTV viewers to actually complete purchases directly on their TV with two clicks, which is a really interesting opportunity. Over time, we launched the affiliate partnership boost to drive incremental sales and the creator earnings, obviously, from YouTube shopping affiliate commissions. So of all, frankly, very, very exciting times.

Sundar Pichai (CEO): Thanks, Sundar. Thanks a lot.

Jim Friedland (Moderator): Thank you. And that concludes our question and answer session for today. I'd like to turn the conference back over to Jim Friedland for any further remarks. Thanks everyone for joining us today. We look forward to speaking with you again on our third quarter 2026 call. Thank you and have a good evening. Thank you everyone. This concludes today's conference call. Thank you for participating. You may now disconnect.

Q1 2026 Earnings Call — April 29, 2026

Brian Nowak (Morgan Stanley): Thanks for taking my questions. I have two. The first one, Sundar, on a recent podcast, you talked about how you were acutely constrained that compute, something you focused on almost every week to sort of make sure you're deploying capacity correctly. So let me ask you this. As you sort of look at the search business, what are the areas that you are most excited about applying next-generation compute toward to sort of generate an ROIC on that return in search in the next 12 months? And then the second one is on the sale of the TPUs to third parties. Just can you help us philosophically understand the strategy around pricing them, given the high ROIC of using TPUs to power multi-year Google Cloud workloads a little bit? Thanks.

Sundar Pichai (CEO): I'll take the search one first. You know, obviously, you've seen we are taking advantage of all our investments in building the Gemini models and both obviously applying it in search and the Gemini app, driving innovations in AI overviews and AI mode, and they're all contributing to the increased usage of the product. I do think looking ahead across both these surfaces, you know, there is a massive opportunity to go deeper in what we do for our users, I think, you know, bringing agentic flows, workflows to consumers in a way that it's easy for them to do, including in the context of search, I see as a huge opportunity ahead. And obviously, we are in very, very early innings of all that. But our investments in our full stack of AI approach, I think, puts us in a good position to bring those experiences to search. And I'm pretty excited about it.

On the second question around TPUs, you know, obviously, you know, we do think about it as, you know, what are we doing through Google Cloud to help our customers? And, you know, that's the framework with which we think about it. In that context, you know, there are situations where it makes sense, for example, you take customers like Capital Markets where they are running this, you know, highly performant, you know, AI workloads. They wanted, you know, TPUs in their data centers. So there are, you know, and those trends are true across a diverse set of industries and in certain cases frontier AI labs too. And so we are, you know, opportunistic about it. But I do think we step back and think about it overall as the opportunity for Google Cloud. A lot of it is providing infrastructure through cloud. At times, it is direct sales of TPU hardware to a select group of customers. But again, we do take ROIC approach, and some of it helps us get more economies of scale, scale in our overall computer environment as well, and so helps us invest in the cutting edge, which we need to do the next generation as well.

Doug (J.P. Morgan): Thanks so much for taking the questions. One for Anat and one for Philip. Anat, you talked about 2027 CapEx that it'll increase significantly, and I know you didn't quantify it, but how do you think about the current CapEx trajectory, the ability to service this massive backlog that you've built up in just the last quarter and what will no doubt increase going forward? And then, Philip, can you just talk more about the drivers of search queries at an all-time high and then how you're thinking about how much room there may be to increase coverage of search queries, just the ability to show ads against a higher percentage of queries than the 20% you've been at historically? Thanks.

Anat (CFO): Let me start with your first question on CapEx and how we think about CapEx increase going into 2027. So you've seen us over the past several years increase CapEx every year, and we have done it very thoughtfully to meet the demand that we are seeing, both from external customers as well as demands across the organization. And you're seeing the proof point, the ROIC on that, in terms of just the growth rate we're seeing, whether it's growth rate within search or certainly the cloud business and the opportunity we have within the cloud backlogs. So as we're seeing that robust demand across the business, we are looking at what can we do to support that growing demand and the opportunity ahead of us, and increasing CapEx to meet that demand will provide more clarity in future earnings call about what that number will be, but that's the opportunity we're seeing ahead of us. It's quite meaningful, and we want to make sure we capitalize that and we do it in a way that's responsible as we've done to date.

So on the second part of your question, first of all, just to zoom out for a second, I mean, we're very pleased with the performance of our ads business here. And as Anat shared, Google services benefited from a strong FX tailwind. That's important to keep in mind. The strength we saw in search was not due to a single driver, but was really the result of many parts of our business showing strength and working very well together. If I just deep dive for a second into the vertical perspective, retail finance, I talked about it in health, drove the greatest contribution, although all major verticals actually contributed. And we make hundreds of changes every quarter to improve the user experience, the advertising experience, and so that's really contributing to our performance here and we've also been able to generate very strong performance while significantly evolving the search results page here. The queries continue to grow and as Sundar mentioned, they were at an all-time high. We see AI overviews and AI mode continue to drive greater search usage and growth in overall queries including in commercial queries. You specifically asked about the 20% on the coverage side.

And as I said before, I think with the ability of AI to better understand intent and a lot of other vectors around it, I think there is upside in that coverage number. And overall, just the understanding that we have with Gemini on its hand has just significantly expanded our ability to deliver ads on longer, more complex searches that were previously really difficult to monetize. And so, as I shared earlier, we're deploying our Gemini models now across all of our ad infrastructure, and it's really driving improvements across the big three areas that I highlighted in my prepared remarks.

Eric Sheridan (Goldman Sachs): Thanks so much for taking the questions. Maybe two if I could. The first one, just building on the answers so far, when you look at the backlog you disclosed today, so I would love to know if you can come back to your comments on AI infrastructure and your unique approach and how that positions you to either build capacity, scale, compute, and do it in a way that is, as Anat said, efficient, sort of effective from a margin standpoint as well as a compute standpoint, just to understand where you sit competitively in your mind relative to others. That would be one. And then, Philip, to bring you into the conversation, you referenced UCP, and there's been a lot of industry inertia around UCP very quickly. Talk to us a little bit about what UCP means for the services business as agenda commerce scales in the years ahead. Thanks so much.

Sundar Pichai (CEO): Look, I do think part of – I mean, I do think we are genuinely differentiated. We are unique in the market because of our vertically optimized AI stack and the way we co-develop the components from our infrastructure and models to platforms and the tools to applications and agents. And the fact that we – you know, own frontier models, own the silicon, you know, really helps us stay ahead of the curve. And on top of it all, just to put an extra point on it, the deep investment in our security layers to keep everything safe. And I think we are the only provider in the market that offers all of these in a vertical stack. And so overall, again, to my earlier comments to Brian, I think about it all as Google Cloud. We have many different ways to serve our customers so we can meet them in a way suited to their needs, I think better than other players here. And I do think, you know, looking ahead, our ability to invest in this moment and stay at the frontier, you know, I think puts us in a strong position. And I think we are doing it based on tangible demand signals we are seeing. And it's not just on the revenue side, but, you know, I'm talking from our ROIC framework. And, you know, that's what is helping us navigate this moment responsibly.

And to the second part of your question, look, we're in the early stages of the agentic era. Agentic is more than just completing transactions. We all know this. We see agentic experiences as additive, and it will really transform how we shop from discovery to decisions while helping, obviously, brands differentiate themselves. We've been very intentional about creating an agentic experience that works for our users, our partners, for the entire ecosystem. And our goal is really to remove the grunt work of shopping so consumers can focus on the enjoyable parts. For decades, you could either shop fast or smart. And I think with agenda commerce, you no longer have to actually choose between speed and certainty here. And the vision is to make commercial experiences across the board, assistive, more personal, more fluid. And we're carefully designing space and agentic workflows for users to really see valuable components of their shopping journey beyond just price, such as customer service, brand loyalty, and more while removing the friction of the process that I just talked about.

And this is exactly where the part of your question kicks in, the Universal Commerce Protocol, a new open standard for agentic commerce that works actually across the entire shopping journey, from the discovery to the buying and the post-purchase support that we just talked about. And it was really co-developed with the industry leaders, including, I mentioned them, Shopify, Etsy, Walmart, and so on. And we've received tremendous feedback so far from hundreds of top tech companies, payments partners, retailers really interested in integrating. And it will help power a new checkout experience in AI mode, in search, in the Gemini app, and allowing shoppers to actually check out from select merchants right as they're researching on Google and going through this journey. So we're very, very excited about it.

Ross Sandler (Barclays): Yeah, just following up on the last question on agentic shopping. So it seems like we're at the point in time where this is actually going to start happening finally. So, Philip, just to elaborate a little bit, as you look at carrying the AdWords business from kind of the old way of doing things to this new agentic, frictionless shopping way, how do you see the price and volume kind of growth trends for core AdWords evolving as you start implementing more agentic workflows in search?

Philip (Executive): Look, our number one focus is obviously on the user experience here. And I think the most important part in this is what I mentioned before. We're carefully designing the space in the agentic workflows for the users to actually see the valuable components within that shopping journey. And the second you have the space, you obviously have the ability for interesting advertising models. I think it's also worthwhile noting that beyond just the traditional agents, there's a lot of additional ways we can actually use AI to improve the shopping experience. You can think about it like our apparel try-on tools that is now available in the U.S. You can think about Google Lens. So there's a lot more to do here, but I think the key part is actually what I said before. We focus on the user experience here and then think. I think all else will follow if we pay attention to the points I mentioned.

Michael Nathanson (Moffett Nathanson): Thanks. One for Sundar, one for Philip. Sundar, if I can connect Brian's question and Eric's question and go a little bit higher, I want to understand how are you deciding, how are you allocating which divisions and projects get excess capacity even though you're constrained, right? So how do you decide between all the internal projects you have and the external projects, right? So what types of screens are you running to decide, you know, who gets the incremental capacity? And then for Philip, I noticed that you said it's on the Gemini app. There's more and more images that come to you in the shopping journey. Can you tell me your thoughts about adding advertising on that app and what's guiding your decision-making here on adding ads on Gemini? Thanks.

Sundar Pichai (CEO): I think a great question on an ongoing basis. I'm looking forward to Gemini helping me more and more as I'm thinking that through. Look, I do think that the foundation where we start with it is what do we need from a R&D standpoint to develop models of the frontier. So what do you need for, you know, training these models and so effectively the compute needed for GDM because it's a foundation for everything we do. And so that's a core principle with which we operate. And then, obviously, you know, we, with the ability to plan ahead, we are, we do, you know, we do long-range plans on our core areas, be it search, be it YouTube, and so on, as well as what we see in Google Cloud. And obviously, in Google Cloud, you know, we have, we are providing enterprise AI solutions which this quarter had an 800% year-on-year increase from the prior year. So we're seeing strong demand for Gemini Enterprise, our AI solutions there. We see strong demand for infrastructure in Google Cloud. And as I said earlier, in some cases, we are seeing demand for TPU hardware, TPU hardware and others data centers as well.

So, you know, we are modeling these out and working to allocate across these areas. Obviously, we are compute constrained in the near term, and as an example, our cloud revenue would have been higher if we were able to meet the demand. So we are working through that moment, and, you know, we are investing, but we have a robust, you know, long-range planning framework, and, you know, we see extraordinary opportunities ahead, and, you know, we are allocating with that framework in mind.

And to the second part of your question, as I said in my previous answer, we are obviously focused on the user first and creating a really great user experience with all of our products, especially annual products. And specifically on monetization in the Gemini app, our focus right now is on AI mode. But it's fair to say that we really believe a format that works well in AI mode would transfer successfully to Gemini app. And so today in the Gemini app, we're focused on the free tier and subscriptions, and our AI plans were a sizable contributor to our Google One revenue growth. But let's also be clear, ads have always been a big part of scaling products to reach billions of people. And if done well, ads can be really valuable and really helpful commercial information. And at the right moment, we'll share any plans, as we have said, but we're not rushing anything here.

Mark Schmulich (Alliance Bernstein): Yes, thanks for taking the question. Philip, one more on search performance, if I can. You know, you talked a few times about kind of optimizing for the consumer experience. And I guess besides higher query volume, is it fair to conclude that consumers are using these AI tools, Google's or otherwise, and it's shrinking their purchasing journeys significantly, converting at higher rates? And if so, is there a way to dimensionalize how much of the strength in search is being driven by that behavioral change against perhaps some of the newer advertiser AI tools that you've been launching and rolling out? Thank you.

Philip (Executive): I think the way to think about it is really to think about the expansionary moment we see here for search. This is the key part. AI is fundamentally changing how the world searches for and how it accesses information. Queries are at all-time highs, understand this. Traditional search really started with 10 buildings, and now we have AI overviews and AI mode, and they have made search more intelligent than ever, and they let you ask far more complex questions. And we have Lens or Circle to Search, and we have Search Live. Search Live is now available to all countries and languages that support AI mode. Again, it shows you the expansionary nature of it, and we have our AI-driven search campaigns, and we have now SMBs that can reach customers that feel that it really wasn't possible even a few years ago, and you can add in Google Translate and so on. So I feel if you factor all of this in, we're in a pretty good place and are quite excited about where this is going.

Ron Josie (Wood City): Great. Thanks for taking the question. Maybe this one is for Anat. You know, with margins continue to expand here, I wanted to understand maybe if you could break down the cost drivers or really the drivers of margin expansion, particularly amongst cloud. There's a thesis out there that AI revenues are a lower margin in general, but we are seeing margins improve. So more insights on just the cloud business and what's driving that margin expansion. Obviously, demand may be pricing, but that would be helpful. Thank you.

Anat (CFO): Sure. Let me help unpack the margin expansion. Obviously, we're pleased to see that there are pushes and pulls across the business, including within cloud specifically. And I would start with the top line. When we see this robust, strong revenue growth, both in cloud and Google services, it does provide leverage all the way down to the bottom line within the income statement. And, you know, we've been working hard to ensure we're running a productive and efficient organization. And it's not just how we operate the business, but even in areas such as our technical infrastructure, where we are investing these significant CapEx investments in our data centers and servers, we are looking at how we drive scientific process innovation within that organization. And that is reflected both in cloud and Google services as we allocate costs based on consumption. In the past, I did talk about the depreciation associated with these investments that is hitting both Google Cloud and Google Services. Google Cloud expanded margin quite significantly from a year ago, as you've seen in our numbers that we've just previewed.

And a lot of it, again, is the top-line growth that Google Cloud is providing or producing, as well as an incredibly efficient way of running the business. I will give Thomas and the team a lot of credit for running a very productive organization and making sure that we are supporting our customers and providing the services and products that they want and benefit from, continuing to drive top-line growth and doing this well within the middle of the income statement, all the way from a very efficient technical infrastructure, thinking through how do we leverage AI across our business. Sundar mentioned the use of coding internally, how Gemini helps us there at optimizing our real estate footprint. And we're going to continue to do this. We're not going to stop here. We're going to continue to push for more efficiency, knowing that we're going to have the headwind associated with the depreciation coming with higher CapEx level.

Ken Gorofsky (Wells Fargo): Thank you very much. Two, if I may, please. First, on the cloud and capacity, could you speak about how your verticalized capabilities enable you to navigate a complicated supply chain, especially one experiencing inflation and constraints? Are you factoring any supply chain price inflation into 26 and 27 CapEx commentary? And as part of that, maybe Anat, could you update us on the allocation of compute capacity, internal versus external cloud? And then one more, please. When you think about search query volume growth, we're clearly seeing expanding use cases. Historically, it's always been free to the consumer and completely ad-supported. Do you see future use cases where certain consumer use cases are more effectively monetized via subscriptions and maybe a different mix of the consumer, quote-unquote, search, the new search opportunity? Thank you.

Anat (CFO): All right, Ken. Maybe there are a few parts to it. Maybe I'll touch on it. And, you know, on overall compute, you know, I think I spoke earlier on how we think about allocation of compute across our businesses. And, you know, I think, again, the long-range planning and the ROIC frameworks, you know, give us a good way to plan ahead. I do think we, I mean, obviously, we are, you know, working through a complicated supply chain environment, as you point out, and we're factoring that into any commentary we give. But I think the scale at which we are operating and our ability to work across all layers, both, you know, our supply chain partners see the strength of our diversified businesses and the demand we drive and our frontier technology and the investments all through the stack. I think they help us get into deeper partnerships all across the supply chain. And I think that's, and I mentioned earlier, the economies of scale point as well. So all of that factors in a positive way there, I think.

In terms of search, look, I think we are proud that we build models that all, you know, we are at the frontier across the period of frontier. We do think about capability and the cost frontier deeply so that we can serve users at scale. But at the same time, we can bring in the most powerful models for the most demanding queries. But the future, as you are right, in a valuable, as we sell more and more valuable use cases, there are going to be use cases where people will want to use the most powerful model. And there may be different ways to accomplish that. So we're going to put the user first and support them in the way that they want to use the product. And we already provide various tiers of our subscription plans in which you can get access to more powerful models, and that applies across your Google user experience, including in Search. And, you know, you've seen the momentum. You know, we saw a very robust quarter in terms of our AI subscriptions growth, you know, driven by interest in getting access to better Gemini models. And so I think that sets us up well to serve the breadth of use cases people would want in all phases, including in Search.

Justin Post (Bank of America): Great. Thank you for taking my question. I expected a lot of interest in your TPU sales. So can you help us think about how you're thinking about the opportunity there and then maybe how much break down the backlog growth a little bit between TPUs and cloud? And then the second question, just think about the margins on these big generative AI cloud deals. How do you think about these $100 billion deals coming in and the margins associated with those? Can they be similar to your cloud business as it is? Thank you.

Sundar Pichai (CEO): Look, you know, overall I would say, look, we see tremendous interest in – there's tremendous demand for both AI solutions as well as AI infrastructure, including, you know, massive interest in our, you know, GPU offerings as well as TPUs. And so we are, you know, we are, you know, proud that we can provide customers with a very diverse – you know, with the breadth of our offerings and, you know, let them, we can meet them in terms of where their needs are.

Philip (Executive): And maybe I'll pass it on to give some color on the backlog growth. Yep. So the backlog, the TPU hardware agreements that Sundar referenced in his prepared remarks are reflected in our cloud backlog of the $462 billion, although the majority of the backlog is still GCP agreements. Now, if you think about the total backlog, just over half of it will convert to revenue in the next 24 months. And the TPU hardware sales, more specifically, we expect a small percent of them to see coming through as revenue later this year, and then the majority to be realized as revenue in 2027.

And then anything on the big AI deal margins with the generative AI companies? Look, I think nothing to comment on any specific contracts, but overall, earlier there was a lot of questions about how do we allocate, and remember, in a constrained environment, when we are choosing to allocate across all these opportunities, we are working off a robust ROC framework.

Management: Thank you, and that concludes our question and answer session for today. I'd like to turn the conference back over to Jim Friedland for any further remarks. Thanks, everyone, for joining us today. We look forward to speaking with you again on our second quarter 2026 call. Thank you and have a good evening. Thank you, everyone. This concludes today's conference call. Thank you for participating. You may now disconnect.