$GOOGL · Adam Khoo · 2026-10-30

In their latest earnings reports, broadband companies such as Amazon, Meta Platforms, Alphabet, and Google have reported negative free cash flow.

shares of Alphabet, the owner of Google and YouTube, fell by 13% after it announced its earnings.

I'm looking at revenue growth, and it's growing very well. You can see Alphabet (Google) with revenue growth of 25%, Meta at 26%, and Amazon at 13% after excluding the effects of foreign exchange rate changes

Therefore, operating income was also in very good shape. Google is growing by 30%. As you can see, Google's operating cash flow grew by 19% year-over-year. Sorry, during the past twelve months.

Therefore, some are concerned that "Google's operating cash flow in the third quarter fell by 13%." Again, I am not worried because this negative figure resulted from two exceptional reasons.

Firstly, because of the European Union fine. You know that these companies get fined all the time, right? So, they paid the fine in the third quarter. Their cash flow from operations also turned negative this quarter due to an accumulation of inventory ahead of sales of Tension Processing Units (TPUs).

Now, what are TPU units? As you know, Amazon and Google now sell semiconductors. In a way, they are competing with Nvidia, aren't they? So, the AI chips that Google sells are called TPUs.

Now, before they can sell TPU units, they have to put them into their inventory. Inventory has a negative impact on cash flow because liquidity is tied up in inventory. Later, when they sell them to customers, the cash flow will come in in 2027.

So, the inventory buildup and the EU fine caused the operating cash flow to turn negative this quarter. This does not worry me at all, because it does not mean that the work is not going well.

Business is going very well, but because of the timing of the inventory and that ridiculous penalty, the flow has turned negative.

However, in the case of Amazon, Meta, Microsoft and Google, their operating cash flows are growing very well. So, they are generating more cash flow from their businesses, right?

Therefore, this indicator is on the rise. But why are their free cash flows declining? The reason is that their capital expenditures have recently increased. Why did their capital expenditures increase?

Because they are investing billions upon billions to build these data centers to solidify their leadership in the artificial intelligence revolution. So, because of the rise on this side, the other side temporarily fell.

Let's start with Alphabet, or Google. There are again some other concerns. The first concern was a 26% drop in earnings per share, which contradicted analysts' expectations. So, what happened?

Was it a temporary issue, or something that would affect the company's long-term performance? The answer is that it is a temporary and entirely exceptional problem. The reason for the decline in earnings per share is unrealized losses resulting from the valuation of Google's investment in "SpaceX".

If we exclude that, their operating income has actually increased by 30%. Good? So, this is nothing to worry about.

Secondly, their operating cash flow decreased by 13% for this quarter. I explained this previously because of the EU fine, and because of the accumulation of stockpiles of artificial intelligence chips (TPUs) before they were sold and the resulting cash flow.

Again, this is an exceptionally recurring problem. There is absolutely no need to worry.

Now, the third problem is the search engine. As you know, Google traditionally makes money from search ads. When you search for things online and the search results appear and you click on advertising links, that's how Google makes money, right?

Their research growth was initially 17%. In this quarter, they recorded 12%. There is a slowdown in research growth, and people are panicking. They say, "Oh my God, this means their research activity is dying, being drained by AI results that aren't generating as much profit."

"And that's why," my God, they're about to collapse. They are on their way to getting lost. "That's why they sell their shares, isn't that right?" Here's the truth. The truth is that before the advent of artificial intelligence, their search growth ranged from -2% in some quarters to 13% in others.

This is the scope that existed before the advent of artificial intelligence, isn't it? Now, as artificial intelligence has taken off, and Google has launched the comprehensive AI overview and mode that we all use today, their search growth has jumped from a range of -2% to 13%, reaching 17% in the fourth quarter of last year, 19% in the first quarter of this year, and 17% in the second quarter of this year.

In the third quarter, it slowed down again to 12%. Now, is this a bad thing? No, because at 12%, it is still within the upper range of what it was before the start of artificial intelligence.

Good? Therefore, intensive selling is completely pointless.

The reason their search growth slowed to 12% this quarter is due to three reasons. The main reason is the recovery of the US dollar, which caused their profits to decrease when converting euros and British pounds back into US dollars.

So, it was a short-term problem related to exchange rates, wasn't it? The second problem is that some advertisers in the Asia-Pacific retail sector have backed away after the European Union abolished their import exemption.

Media spending has also returned to normal after an unusually strong June filled with World Cup matches. The third reason, which is the least influential, is that AI-driven search queries are growing rapidly and currently generate returns at a lower rate than traditional search results.

So, it's a delay in generating revenue, which is the same thing that happened when Google moved from desktop to mobile many years ago. So, if you examine all these issues closely, you can see that there are no signs of a decline in business activity.

The business is growing and performing very well. Revenue rose 25%, marking the 13th consecutive quarter of double-digit growth, and Google Cloud increased 103% as their profit margins rose 23% to 36%, and their search growth of 12% is the highest in 5 years.

So, is it a dying business? Is it a business in decline? Well, the decision is yours. For me, no, there is absolutely nothing wrong with this business.

Here you can see what is happening with Google or Alphabet? Revenues are growing very well, aren't they? So, that's the revenue, and operating income is growing very well too. Operating cash flow, shown in orange, is also growing very well.

The thing that decreased was free cash flow. Can you see the free cash flow here? Let me use a different color. Yes. So, the dark black color, you can see that it grows, then it drops here.

So, this is causing panic among people, a decrease in free cash flow. As I explained, the reason for the decrease in free cash flow is not a decrease in operating cash flow. Operating cash flow is very good, and the reason is that capital expenditures have increased significantly due to capital growth expenditures.

Now, how do we calculate the intrinsic value of this stock? Typically, to calculate intrinsic value, we must project the current free cash flow over the next twenty years. Then we discount it to the present value, right?

However, if you do this using the current free cash flow, you will get a very low number because the current free cash flow is artificially low due to high capital expenditures.

So, to calculate a fair intrinsic value, what should we do? We cannot use the latest free cash flow. We must use what is called the printed (adjusted) free cash flow.

Here you can see that this is the operating cash flow. And you can see that it was growing, growing, growing, growing, growing, growing, didn't it? And capital expenditures here, you can see that they were also growing.

Good? So, if you take the operating cash flow and subtract that from that, you get the free cash flow. It is now very low due to high capital expenditures. So, to calculate the printed free cash flow, what I do is this.

I take the most recent cash flow from operations, which is this. This is the cash flow from operations. I take this, and subtract from it the average capital expenditures for the past five years.

So, 1, 2, 3, 4, 5. That's the last five years, right? 31 billion, 32 billion, 52 billion, 91 billion, and 132 billion. So, I take these five numbers, add them together, and divide by five to get the average capital expenditure for the past five years.

When I subtract the 5-year average of the current operating cash flow, I get the adjusted free cash flow. This is the number I use to evaluate the company.

Google's adjusted free cash flow is 117.651 million, or $117 billion. Therefore, we will use this in the intrinsic value calculator.

You can see that if you drop the last free cash flow, which is artificially low, you get a very low intrinsic value, which is unrealistic, isn't it? We need to adjust the free cash flow.

Therefore, we will set the adjusted free cash flow, which is 117.651. That would be more realistic, okay?

You can see the growth rate used to forecast the company’s business based on analyst estimates provided by FactSet, which is 18% growth for the next five years, and then long-term growth of 16% here.

You can rely on these figures, but for me, I'm usually more conservative. Since I am in the growth stage of 6 to 10 years, I do not accept more than 15%. I will set a maximum limit of 15%.

Therefore, I will set a maximum limit of 15% here. Then I will calculate based on this adjusted free cash flow and lower growth rate. Calculate. Ta-da! What did you get? I obtained an intrinsic value of approximately $370. Here we have it.

Now, if this is too stressful for you and you say, "I just want a shortcut." Quite simply, you can just look at the Oracle value, which shows a very similar number by adjusting for free cash flow and adjusting for growth rates.

It is here. Here we are. there. So, the value of "Oracle" is 377, which is approximately 370, approximately in this range. At the current share price of 283, it is undervalued by about 24%. So, a great company, and undervalued.

Does this mean that the stock price will rise tomorrow as soon as Adam announces this, reaching 370 and beyond? Of course not. Good. This tells you the true value of the shares.

This does not mean that the price will reach that point tomorrow. The price may fall further because, in the short term, the price is not driven by logic or fundamentals, but by emotions, manipulation, and all sorts of things that happen in the market.

But what that tells me is that in the long run, Google will continue to grow and grow and grow, and it is worth 370, which means it will return to 370 and higher over time. When that will happen, I have no idea.

It could be next week, it could be next month, it could be next year. I don't know, do I? But in the short term, the price is falling due to manipulation and fear, and of course it may fall even further, okay?

If you look at the Google chart here, you can see that I have identified these as technical support levels, and recently you can see the price fluctuating up and down. So it is currently approaching this support level here. 274 is a strong support level.

So if it reaches this point, this could be a level to add shares because the support level basically means that historically there has been more demand than supply to reverse the price trend upwards at this level.

So it might bounce back up here, but if it breaks this support, then of course you have another strong support at 243. Okay? That's why when I add shares, I don't risk everything at one level because you can never determine the absolute bottom, but I add in increments.

I add slowly in batches over time, averaging the cost in dollars until I have a full position, after which I don't add any more.