Google’s R&D Jumps 36% to $20.6B, 2.3x Microsoft’s Spend

Alphabet reported on 28 October 2026 that its research and development expenses rose to $20.6 billion in the third quarter, from $15.2 billion a year earlier, in its results release. Microsoft’s Form 10-Q for the same three months, filed the same day, puts its research and development expenses at $9.0 billion.

By our arithmetic, Google’s parent spent about 2.3 times as much on research and development as Microsoft in the quarter, and research and development supplied 94% of the year-on-year increase in Alphabet’s operating expenses.

Business Pill · Operating Leverage

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Where the Increase Went

Alphabet’s operating expenses, which its income statement splits into research and development, sales and marketing, and general and administrative, totalled $35.6 billion in the quarter against $29.7 billion a year earlier, according to the release. That is an increase of $5.8 billion, or 20%, by our arithmetic.

Research and development rose $5.5 billion, or 36%. Sales and marketing rose $1.6 billion, or 22%, to $8.8 billion. General and administrative fell $1.3 billion, or 17%, to $6.1 billion, according to the release and our arithmetic.

On the earnings call, according to a caption transcript, Chief Financial Officer Anat Ashkenazi said research and development expenses increased by 36%, “driven by compensation, primarily for investment in AI talent as well as depreciation”. She said sales and marketing was up 22% “due to investments in Gemini and compensation”, and that the fall in general and administrative expenses was due primarily to lapping of higher expenses in the third quarter of last year, partially offset by current-year legal charges.

Eight Quarters of the Mix

Across Alphabet’s quarterly releases, research and development was 53% of these operating expenses in October to December 2024, then 58%, 53%, 51%, 58%, 59%, 55% and 58% in July to September 2026, by our arithmetic. Research and development itself rose from $13.1 billion to $20.6 billion over those eight quarters.

Research and development equalled 16.2% of Alphabet’s revenue in the third quarter, against 14.8% a year earlier. Operating expenses as a whole equalled 27.9% of revenue, against 29.1%, because revenue grew 25% while operating expenses grew 20%, by our arithmetic.

Microsoft Shows the Same Tilt

Microsoft’s 10-Q says its operating expenses increased $975 million or 6%, “driven by continued investments in research and development compute capacity and talent”. Research and development increased $901 million or 11%; “Sales and marketing expenses were relatively unchanged”; general and administrative expenses increased $75 million or 4%.

By our arithmetic, research and development supplied 92% of Microsoft’s operating-expense increase, close to Alphabet’s 94%, and equalled 9.8% of Microsoft’s revenue of $92.3 billion. The 10-Q also says total company headcount decreased 2%.

Connecting the Coverage

The unallocated line where Alphabet books shared AI work is covered in Google’s shared AI R&D line hits $7.7 billion. Headcount is in Google headcount rises 7.7% to 204,757.

Tonight’s results: Google Cloud revenue doubled to $30.7 billion, explained in how Google makes money now. On Microsoft’s cost base, Microsoft’s depreciation bill jumps 56%.

The Structural Read

As we read the eight quarters of releases, research and development has been more than half of Alphabet’s operating expenses in every quarter, from 51% to 59% by our arithmetic, and reached $20.6 billion in July to September 2026.

Alphabet’s CFO tied the increase to people and machines: she said research and development rose 36%, driven by compensation for AI talent and by depreciation, according to the caption transcript.

Microsoft’s 10-Q describes a similar pattern at a smaller scale: research and development supplied 92% of its operating-expense increase, by our arithmetic, while its sales and marketing expenses were relatively unchanged.

Three Implications

FOR ALPHABET Research and development equalled 16.2% of revenue in the quarter, against 14.8% a year earlier, by our arithmetic from its release.

FOR THE COMPARISON Alphabet’s $20.6 billion of research and development was about 2.3 times Microsoft’s $9.0 billion for the same three months, by our arithmetic.

FOR THE DISCLOSURE Neither company splits research and development between AI and other work in these documents, and the two companies’ expense categories may not be defined identically.

The Business Engineer Lens

This story maps onto the Business Engineer framework The CFO’s Guide to the Token Economy.

The framework opens its argument with a shift in who owns AI spending: “For two years, AI was a CIO line item and a CEO talking point.” It argues that in 2026 AI became a finance problem as its economics turned legible.

Alphabet’s income statement for July to September 2026 shows where one large company’s operating-expense growth went: research and development, which its CFO linked to AI talent and depreciation. The framework does not discuss these figures.

What Is Not Established

Neither company splits research and development between AI and other work in these documents. Alphabet’s research and development line covers all of its segments and the Alphabet-level activities; Microsoft’s covers the whole company. The two companies’ expense categories may not be defined identically, and the call quotations come from a caption transcript, not an official transcript.

The Bottom Line

Alphabet’s operating expenses rose 20% to $35.6 billion in the third quarter, and research and development accounted for $5.5 billion of the $5.8 billion increase while general and administrative fell, by our arithmetic from its release. Its $20.6 billion of research and development was about 2.3 times Microsoft’s $9.0 billion for the same quarter.