Alphabet Inc Earnings - Q4 2025 Analysis & Highlights
Alphabet Inc. delivered strong Q4 2025 results driven by accelerating AI adoption across Search and Cloud, with record annual revenues exceeding $400 billion, while announcing substantial 2026 capital expenditure plans of $175-$185 billion to capitalize on extraordinary AI demand and maintain competitive positioning.
Key Financial Results
Consolidated revenues reached $113.8 billion in Q4 2025, up 18% year-over-year (17% in constant currency).
Full year 2025 Alphabet consolidated revenues were $403 billion, up 15% on a reported and constant currency basis.
Alphabet annual revenues exceeded $400 billion for the first time.
Net income increased 30% to $34.5 billion, and earnings per share increased 31% to $2.82.
Operating income increased 16% to $35.9 billion and operating margin was 31.6%.
Record operating cash flow of $52.4 billion was generated in the fourth quarter and $164.7 billion for the full year.
Free cash flow was $24.6 billion in the fourth quarter and $73.3 billion for the full year.
Total cost of revenue was $45.8 billion, up 13%.
Total operating expenses were up 29% to $32.1 billion.
Business Segment Results
Google Services revenues increased 14% to $95.9 billion, reflecting strong growth in Search and Subscriptions.
Google Search and other advertising revenues increased by 17% to $63.1 billion, representing another strong quarter with continued growth across all major verticals with the largest contribution from retail.
YouTube advertising revenues increased 9% to $11.4 billion, driven by direct response advertising.
Network advertising revenues of $7.8 billion were down 2%.
Subscription, platforms and devices revenues increased 17% to $13.6 billion due to strong growth in YouTube subscriptions, particularly YouTube Music and Premium, and growth in Google One.
Google Services operating income increased 22% to $40.1 billion, and operating margin was 41.9%.
Google Cloud segment delivered outstanding results with Cloud revenue accelerating meaningfully and up 48% to $17.7 billion.
Cloud operating income was $5.3 billion, more than doubling year-over-year, and operating margin increased from 17.5% in the fourth quarter of last year to 30.1%.
Google Cloud's backlog increased 55% sequentially and more than doubled year-over-year, reaching $240 billion at the end of the fourth quarter.
In Other Bets, revenues were $370 million, and operating loss was $3.6 billion, reflecting the $2.1 billion Waymo charge.
Search saw more usage in Q4 than ever before as AI continues to drive an expansionary moment.
YouTube's annual revenues surpassed $60 billion across ads and subscriptions.
Cloud significantly accelerated with revenues growing 48% now on an annual run rate of over $70 billion.
Gemini Enterprise managed over 5 billion customer interactions in Q4, growing 65% year-over-year.
Revenue from products built on generative AI models grew nearly 400% year-over-year in Q4, significantly accelerating from the prior quarter.
Capital Allocation
Capital expenditures were $27.9 billion for the fourth quarter and $91.4 billion for the full year, in line with expectations.
The vast majority of CapEx was invested in technical infrastructure, with approximately 60% of that investment in servers and 40% in data centers and networking equipment.
The company returned capital to shareholders through $5.5 billion of share repurchase and $2.5 billion of dividend payments in Q4.
Alphabet funded a significant portion of the $16 billion investment round that Waymo announced, which will allow the business to accelerate its global expansion.
The company ended the quarter with $126.8 billion in cash and marketable securities, and $46.5 billion in long-term debt.
Industry Trends and Dynamics
Extraordinary demand for AI products and services is driving growth across all business segments.
The company is experiencing supply constraints even as it ramps up capacity to meet demand for AI compute.
Nearly 75% of Google Cloud customers have used vertically optimized AI products, from chips to models to AI platforms and enterprise AI agents.
AI customers use 1.8 times as many products as those who do not, enabling diversification of product portfolio and acceleration of revenue growth.
Gemini 3 Pro has seen the fastest adoption of any model in the company's history, consistently processing three times as many daily tokens on average as 2.5 Pro.
The number of deals in 2025 over $1 billion surpassed the previous three years combined.
YouTube continues to be the number one streamer in the US for nearly three years, according to Nielsen.
Shorts now averages over 200 billion daily views.
In a number of countries, Shorts earns more revenue per watch hour than traditional in-stream on YouTube, including the US.
Competitive Landscape
Alphabet offers the most extensive model portfolio in the world and leads across text, vision and image to video LMArena leaderboards.
The company has the industry's widest variety of compute options, including GPUs from NVIDIA and proprietary TPUs developed over a decade.
95% of the top 20 and over 80% of the top 100 SaaS companies use Gemini, including Salesforce and Shopify.
More than 120,000 enterprises use Gemini, including AI unicorns like Lovable and OpenEvidence, and global enterprises like Airbus and Honeywell.
The company is collaborating with Apple as their preferred cloud provider and to develop the next generation of Apple Foundation Models based on Gemini technology.
Gemini uniquely positions the company to bring transformational benefits of AI to ads in three critical areas: ads quality, advertiser tools, and new AI user experiences.
Macroeconomic Environment
At current spot rates, the company would expect to see an FX tailwind to consolidated revenues in Q1.
However, volatility in exchange rates could affect the impact of FX on Q1 revenues.
The company is operating in a tight supply environment for AI compute components.
Supply chain pressures and constraints in power, land, and component availability are impacting the ability to ramp up compute capacity to meet demand.
Growth Opportunities and Strategies
The company launched Gemini 3 in December, which is driving state-of-the-art reasoning and multi-modal understanding capabilities.
Google Antigravity, a new development platform where agents can autonomously plan and execute complex software tasks, has more than 1.5 million weekly active users after launching just over two months ago.
The company shipped over 250 product launches within AI Mode and AI Overviews in Q4 alone.
Daily AI Mode queries per user doubled since launch in the US, and AI Overviews continue to perform very well.
Queries in AI Mode are three times longer than traditional searches, and sessions are becoming more conversational with a significant portion of queries in AI Mode now leading to a follow-up question.
Nearly one in six AI Mode queries are now non-text using voice or images, and Circle to Search is now available on over 580 million Android devices.
The company introduced the Universal Commerce Protocol, a new open standard for agentic commerce built alongside many retail industry leaders.
Direct offers, a new Google Ads pilot, will allow advertisers to show exclusive offers for shoppers who are ready to buy directly in AI Mode.
The company is integrating Gemini in Google Workspace, driving wins with global brands like Schwarz Group and public sector organizations like the US Department of Transportation.
Revenue from AI solutions built by partners increased nearly 300% year-over-year, and commitments from the top 15 software partners grew more than 16x year-over-year.
The company will soon launch new YouTube TV plans, bringing more choice and flexibility to subscribers with over 10 genre-specific packages.
The NFL has seen strong NFL Sunday Ticket subscriber growth with YouTube, with the highest paid subscriber number ever in the history of the product.
Over 1 million channels used new AI creation tools daily in December to supercharge their creativity.
More than 20 million viewers used the Ask tool, powered by Gemini, in December to learn more about the content they watched.
Waymo surpassed 20 million fully autonomous trips and is now providing more than 400 thousand rides every week.
Waymo's sixth market, Miami, launched two weeks ago, and Waymo will soon expand its service to multiple cities across the US, and in the UK and Japan.
The company has sold more than 8 million paid seats of Gemini Enterprise, which was launched just four months ago.
The Gemini App now has over 750 million monthly active users.
The company has over 325 million paid subscriptions across consumer services with strong adoption for Google One and YouTube Premium.
The company lowered Gemini serving unit costs by 78% over 2025 through model optimizations, efficiency and utilization improvements.
First-party models like Gemini now process over 10 billion tokens per minute via direct API used by customers, up from 7 billion last quarter.
Nearly 350 customers each processed more than 100 billion tokens in December alone.
The company exited the year with double the new customer velocity compared to Q1.
Existing customers are outpacing their initial commitments by over 30%.
Google Cloud has 14 product lines, each exceeding $1 billion in annual revenue.
Aritzia used AI Max to find new high-value customers, delivering an 80% incremental uplift in conversion value for Q4.
L'Oreal used AI Max in 2025 across 800 unique campaigns in 23 countries and 30 brands, increasing revenue for DTC brands like NYX by 23%.
Advertisers used Gemini to create nearly 70 million creative assets via text customization in AI Max and PMax in Q4 alone.
Financial Guidance and Outlook
For the full year 2026, the company expects CapEx to be in the range of $175 billion to $185 billion, with investments ramping over the course of the year.
The company is investing in AI compute capacity to support frontier model development by Google DeepMind, ongoing efforts to improve the user experience and drive higher advertiser ROI in Google Services, significant cloud customer demand as well as strategic investments in Other Bets.
The availability of supply, pricing of components and timing of cash payments can cause some variability in the reported CapEx number.
In Google Services, the company expects growth to be driven by ongoing innovation in the user experience as well as improved ROI for advertisers, keeping in mind the normal seasonal pattern for advertising revenue.
In Google Cloud, the company is seeing significant demand for its products and services, which it expects to continue to drive strong growth despite the tight supply environment.
Depreciation increased by nearly $6 billion or 38% from $15.3 billion in 2024 to $21.1 billion in 2025.
Given the increase in CapEx investments in recent years, the company expects the growth rate in 2026 depreciation to accelerate in Q1 and meaningfully increase for the full year.
The company is planning to continue hiring in key investment areas such as AI and Cloud.
Just over half of the company's ML compute is expected to go towards the Cloud business in 2026.
AI Infrastructure and Technology Development
The company announced its intent to acquire Intersect, which provides data center and energy infrastructure solutions.
The company will be among the first to offer the latest Vera Rubin GPU platform from NVIDIA, announced at CES.
The company has been developing TPUs for over a decade and has expertise in chips, systems, networking, and software that translates to leading power and performance efficiency.
The company's cloud AI accelerators serve the leading frontier AI labs, capital markets firms like Citadel Securities, enterprises like Mercedes-Benz, and governments for high-performance computing applications.
The company offers leading generative AI models, including Gemini, Imagen, Veo, Chirp, and Lyria to cloud customers.
