Alphabet reported record revenue of $109.9 billion in the first quarter of 2026, up 22% overall, with Google Cloud surpassing $20 billion in quarterly revenue for the first time—a 63% year-over-year increase. CEO Sundar Pichai noted that the business is constrained in the near term by a shortage of compute, and the cloud backlog has swelled to $462 billion.
The company suggests AI is the main driver behind cloud growth, pointing to a sharp rise in token usage. However, this metric is a weak signal for actual usefulness, which will matter more in the long run.
To meet demand, Google is rethinking how it sells its TPUs, its in-house AI chips. Previously available only through Google Cloud, the company will now ship them directly to select customers' data centers.
AI is showing up across the business
Google says revenue from generative AI models is up 800% year-over-year, and deal sizes continue to grow. Paying monthly active users on Gemini Enterprise, the B2B product, rose 40% in a single quarter. The consumer Gemini apps also had their best quarter yet.
The effect is evident in Search as well. Google Search grew 19% to $60.4 billion. Ads chief Philipp Schindler credited Gemini for helping Google better understand user intent, enabling relevant ads against longer, more complex searches that were previously hard to monetize.
"People love our AI experiences like AI Mode and AI Overviews, and they're coming back to search more," Pichai said. These AI-generated answers have drawn criticism, as Google uses them to retain traffic that would otherwise go to outside websites, effectively capturing publisher revenue without paying much for the underlying content.
Ads will eventually come to the Gemini chatbot, but for now the focus is AI Mode. The cost of serving AI Overviews and "core AI responses" in AI Mode has dropped 30%, thanks to hardware and engineering gains.
Google still isn't breaking out the AI numbers
Despite the growth percentages, Google won't share specific revenue figures for its AI business. It's also unclear how much of the booked workload comes from circular deals with AI startups like Anthropic, where companies take Google's money and spend it back on Google services.
The bigger question is whether customers are getting real economic value from these AI services. That will ultimately decide whether Google and other hyperscalers can justify their investments over the long run.