$GOOGL · Dividend Data · 2026-10-29

Alphabet, the parent company of Google, just reported earnings and the stock is down 10.25% after hours. And that 10% drop will be on top of the negative 7% over the past 6 months.

And to our newer Alphabet shareholders, the only thing I have to say is first time Google has had quite a few dips in stock price along the way, including a 20% drop earlier this year and a pretty iconic 29% drop in early 2025.

And for long-term investors, these Google stock sell-offs have been quite rewarding. I personally built my position in Google in that April May 2025 period.

And prior to this 10% drop, I have pretty great returns on it. It's a 100% total return. And that's over about a year and a half.

So, those of us who own Google stock need to be aware that it's kind of ripped in that time period. It also looked historically cheap then in a way that it might not right now.

Alphabet is trading at a higher multiple than it has in many years, especially if you're valuing the stock based on free cash flow. If you're looking at the short-term free cash flow of Google right now, the stock looks super expensive, and that's one of the reasons why Google stock is down 10% after earnings.

The other big thing right now is that fear around the Google search business is starting to come back. That is still Google's largest business by far.

Google search barely grew quarter over-arter and despite strong growth in queries on Google thanks to AI mode that is not yet being monetized in the same way that Google searches.

This combined with record capex and negative free cash flow in the past two quarters is leading some investors to start to worry about Google stock especially after going up 100% in the past year and a half.

So what am I doing with my position in Alphabet?

Today I'm going to do a deep dive into Google stock earnings. I'll address some of the concerns and the reasons for the sellup, but then I'll also be talking about some really bullish things that the market is not reflecting right now.

And I'll just tease one of them. It's the insane growth rate at their Google Cloud business. That is just one of the many things at Google poised for long-term growth.

So, with that said, let's roll the intro and get into this Alphabet stock analysis.

click the link in the description and pin comment and it will open up the Google stock page for you. I'm going to dive into a lot of the big picture financials. But first, I wanted to dive into the results of this quarter.

And the best way to do that is with our new KPI tool at dividend.com and basically lets you visualize the actual business segments of Google over time.

So they just reported Q3 fiscal year 2026 and they had 127.58 billion of revenue in the quarter. In my opinion, one of the most notable things here is that this is the first quarter in the history of Google where Google Search was less than 50% of their overall revenue.

And it's not because that business is declining. It's because the rest of Google is starting to grow around it. Most notably, Google Cloud, which is now 24.1% of their quarterly revenue.

Google subscriptions is up to 11.2%. YouTube ads is at 8.8% and the Google network is at 5.8%.

And on an overall basis, revenue is up 6.5% quarter-over-arter and 24.7% year-over-year. Over the trailing 12 months, Google generated $471 billion of revenue.

And if you extrapolate the latest quarter over the next year with zero growth, Google is on pace for revenue of more than half a trillion dollars. So let's do a breakdown of how each business segment is doing.

And I'll talk about which ones that I think are the most important for analyzing Google stock on a go forward basis.

Now number one has to be Google search. And that's because this is the cash cow that generates all of the money for Google. It's the reason why over the past couple decades, it's been one of the best performing stocks on the market and why it's one of the most valuable companies in the world, generating the largest amount of profits.

Google Search is an incredibly high margin advertising business.

And despite what you see about Google Search dying, usage of it is at all-time highs and continuing to grow.

And even the monetization of Google Search is up 12% year-over-year, $63.35 billion of revenue in this quarter. But there was one negative thing to talk about. The quarter-over-arter growth for Google Search was 0.1% and Google Search as a business has barely grown since Q4 2025.

Now, to be fair, there's been many periods along the way where search growth has been slow or slightly declined in a quarter. But from what I'm seeing in people's reactions to this latest quarter from Google, those fears of Google search dying is starting to come back up again.

This is the same thing that was hurting Google stock in 2024 and 2025 during these sell-offs. It was two things people were saying. Google search was going to get killed by AI.

And then at the same time, kind of ironically, there was a case that was arguing they were a monopoly, a business so powerful it had to be broken up.

I know many of you who watch this video viewed that as an opportunity to buy into Alphabet stock. I did as well. And I would not be so quick to buy into that Google search dying narrative.

As I mentioned, queries on Google are at an all-time high. And a big part of that is due to AI mode on Google and AI overviews.

You can simply just get answers to many more questions. It's a much more useful product than it was a decade ago. But the one valid concern that I see people bringing up is that a lot of this usage of Google is trending towards AI mode and the AI overviews.

And people worry this could cannibalize their paid search ads business. And that is a valid concern, especially as we sit right here in October 2026 and they are currently not monetizing the AI mode that well.

However, this is still Google and in the long run, this will likely be monetized through ads as well as other things. They're doing lots of integrations with shopping and various forms of buying things through Google AI mode.

It's still definitely very early in that, but long-term, I am a pretty big believer in that free AI is going to be monetized. Whether it's Google with AI mode or whether it's ChatgPT's free version, we're just still very early in that.

And at its core, Google, it's still an advertising company. That's where they make all of their money. If you look at Google search and you throw on YouTube ads as well, you throw on the Google network, which is when you see those ads on any kind of website that's from Google, and you're up to $323 billion of revenue over the trailing 12 months, $82 billion this quarter of 10.6% year-over-year.

Then from the ecosystem of Google, you have all of their subscriptions and devices. You got YouTube Premium, you got their enterprise and their like version of Microsoft Office.

$96.3 billion of revenue over the last quarter, $376 billion over the trailing 12 months.

All of this is that super high margin part of Google. This is the cash cow of the company. And when you look at their operating income by segment, this is the bulk of it. They categorize it under Google services.

$39.16 billion of operating income in that segment in the latest quarter, up 16.8% year-over-year and $159.42 $42 billion of operating income over the trailing 12 months.

In my opinion though, if you're a Google bull, the most interesting thing that's happening with Google stock and especially in this quarter is Google Cloud.

It has seen rapid growth over the past few years. If we look at the quarterly view, it generated $30.7 billion of revenue in the latest quarter, up 102% year-over-year.

That is growing much faster than Amazon Web Services and Microsoft Azure. Albeit it's coming from a smaller base. They were in third place.

And here's the other thing that people are not talking about that much. A lot of this Google Cloud revenue is actually them selling their semiconductors TPUs to external customers.

They said on the call that that was making up a large chunk of the growth.

And when you hear that, it starts to make more sense why Microsoft Azure is growing in the 40% and Amazon Web Services is growing at the high30s and 40%. And you see Google Cloud over here at 102%.

The TPUs are helping a ton as well as Google's relationship with Enthropic. They have a lot of contracts signed with Enthropic.

We'll get into that. Over the past 7 years, Google Cloud's quarterly revenue is up 1,000%. That's a 44.74% compound annual growth rate, 93.17 billion over the trailing 12 months, and it's now up to 24.1% of their quarterly revenue.

But here's the part that I actually like the most related to Google Cloud. This business for a decade was losing money for them because they were building it out. They were in the growth phase.

But in 2023, it started to flip the corner. And since then, Google Cloud has started generating significant profits for the company.

In the latest quarter, operating income from Google Cloud was 11.12 billion, up $29% year-over-year. $31.85 billion over the trailing 12 months.

This is going to go up significantly in the coming years. This is rapid rapid growth. If this trend continues, we are only 3 years away from it possibly being half of their operating income. It's becoming a larger and larger percentage.

The flip side of this massive Google Cloud growth is that it involves a lot of capex. This is a capital intensive business. Google search and their ad business is a capital light business.

This latest quarter 51.3 billion dollars of capex that is not slowing down. It is going to keep going up and will be happening for many many years to come. This means the great cash machine of Google has had negative free cash flow in the latest two quarters.

In this quarter they had negative $9 billion of free cash flow. And these two quarters are the only time Google's had negative free cash flow since 2006 Q2.

This company has been a cashgenerating machine and they are now putting it to work and the reason is they think they're going to get a good return on investment in building out these data centers and the growth of Google Cloud is showing that to be true.

Not to mention the whole model development race where Google still is trying to be on the frontier. They just released a new model carbon. Let's see how that goes.

Google very much is an AI company. It's existential to the company. And in the very least on the infrastructure side, you can make the argument that they are going to get a good payback period.

If you listen to SpaceX's recent earnings call, they're projecting under a year in payback period, and that's because they're doing close to spot pricing on their data center contracts.

Alphabet does have a few more long-term deals with companies like Anthropic, but Google is doing the math, and if they don't think they're going to get a year payback period, I guarantee they don't think it's more than 3 years.

So, you should not be misled by thinking Google's negative free cash flow means that they're a declining business or that they're in a bad position. They are investing this money from a position of strength.

Their business is getting larger and larger every single day and every quarter.

They generated $179 billion of operating cash flow over the trailing 12 months. It's up 18.5% year-over-year, $ 42.29 billion in the latest quarter.

And as I mentioned, the big narrative around Google was that they were making so much money and they didn't even know how to reinvest it. In 2021, $142 billion of cash and short-term investments.

But then with AI, they started to find an opportunity to put that money to work.

So they were investing a lot of the capex just based on their cash flow and their balance sheet. They even made intelligent investments into companies like Anthropic, which has ended up being incredibly valuable.

But here's the interesting thing. They believe so much in this AI infrastructure buildout that they are taking on debt and they are doing various methods to raise money. So as of latest quarter they now have $265 billion of cash and short-term investments.

Their total debts up to $125 billion up $479% year-over-year.

But again, keep in mind that this is one of the most profitable businesses in the history of the world. It's a cash machine. they are voluntarily investing all this money, especially relative to a lot of the other companies in the market.

I am not worried at all about Google's balance sheet.

But let's get to some of the more negative parts of their financials and then dive into the valuation around Google stock, how you should think about how it's priced today and whether this selloff is somewhat deserved in the short term because the stock had just rallied up so much over the past year and a half.

So, first, if we take a look at the earnings for Google stock, it on paper looked like it exploded. And then all of a sudden, what happened this quarter? It's back down to $212. What was that?

Well, if you watched my Google videos the past two quarters, you know that a lot of these gains were from Google's early investments in SpaceX and Enthropic.

They had to take on paper gains as the valuations of those companies went up. So this increase in earnings per share for Google stock was not really representative of the cash flow and cash generation of the business.

That's why I usually like to look at operating cash flow as well as free cash flow. And in the long run, free cash flow is the most important metric to be looking at. And Google, similar to companies like Amazon have historically where they're always investing into the future.

They make the argument they're investing all this capex for future growth and capacity to generate free cash flow.

So, is a Google stock a fair value right now? If we take a look at the earnings per share for the company, as I mentioned, it's a little messed up because of those on paper gains in Enthropic and SpaceX.

So, I don't think that's the best way to be looking at the company right now. I want to be looking at free cash flow and operating cash flow.

So, right here, we're looking at the fair value graph. It basically takes the median multiple of the selected metric, in this case, operating cash flow. So we look at the price to operating cash flow over the selected time period in this case 5 years.

So over the past five years the median price to operating cash flow multiple has been 18.33 for Google. And right now over the trailing 12 months it's trading at a 22.18 price to operating cash flow ratio.

And if we look at an alltime view the median multiple is 18.14. So it's not that different than the 5-year view. So based on historic multiples that Google has traded at, it's trading a little rich based on its operating cash flow multiple.

If it returned back to 18.33, it would give an implied fair value of $268. That'd be 17.3% downside from here. And we're already getting closer to that now with this 10% drop.

So we're getting closer to that operating cash flow median multiple over the past 5 years. However, to be fair, Google is growing pretty fast right now. And you can make the argument they might deserve to trade at a higher multiple.

If you look over the past 3 years where a lot of this AI buildout has been happening, the median multiple of priced operating cash flow is 19.97. That gives an implied fair value of $292, which is exactly where this 10% sell-off gets you.

So based on operating cash flow, I think you can make the argument that after this earnings drop, Google stocks trading around fair value.

But now I'll give you the bare case for Google and that has to do with free cash flow. Is Google going to be perpetually in a high capex situation for years and years and years to come?

Their free cash flow has collapsed and then you start spiraling and you think about the whatifs. What if Google searched and their profits start to collapse in the coming years?

And then is Google not going to be the cash machine it has been in decades past?

And I'll tell you what, if you're valuing Google based on the short-term free cash flow this year, next year, and the year after, this stock looks expensive.

Based on the trailing 12 months free cash flow generated, it's currently trading at a 201 price to free cash flow ratio. The median over the past 5 years is 28.35. If it went back to that median multiple, it would give you a 45.68 implied fair value.

Now, in my opinion, I think this can be misleading to look at because all you have to do is think about, well, if Google's free cash flow is negative over the coming year, which it's on pace to look like it will be.

Is Google worthless as a company all of the sudden? No. They're generating more revenue and more operating cash flow than they ever have.

Google is very much still a long-term growth business. So, if I'm valuing Google right now in 2026 and 2027, I'm looking at operating cash flow. And that's going to be my baseline metric of how I'm valuing whether it's overvalued or undervalued.

And then, of course, I'm also going to be looking at growth rates because if Google starts accelerating, growing faster and faster, So, as I wrap up this Google stock analysis, I think this 10% sell-off is pretty healthy.

I'm not looking at this as being scared or re-evaluating my position in Google. If anything, it's tempting to continue dollar cost averaging and building out that position.

And I think you can make the argument that Google's now trading around fair value.