$GOOGL · The Motley Fool · 2026-10-30

but we have Alphabet's earnings report to discuss. The share price has fallen by 13%. They reported 100% growth in their cloud business. No one is talking about this because search is on everyone's mind,

the market wants assurance from Alphabet that, "Hey, your revenue is fine." We understand that cloud growth is great, but overall, you know, revenue could have been better. In fact, they disappointed us a bit.

What does this mean for your ability to repay your debt in the future?

And you might think, I mean, this is crazy, right? This is the alphabet. Why are you so worried about this company's ability to pay anything?

But even large companies, even Alphabet, had $265 billion in cash on hand as of last quarter. They don't need to withdraw cash. Their debt isn't really a problem, but the market is saying, "Hey, wait a second.

You guys are in negative free cash flow now. We don't like that."

If you look at the alphabet, I think there are several things happening there at the same time. There's a lot of attention being paid to the advertising business, right? Analysts were able to estimate that operating income from the advertising business, which they do not disclose separately, was about $1 billion lower than expected.

But the flip side is that Google Cloud and that part of the business, where revenue has doubled, is much smaller than Azure, and that partly explains the growth rate. Operating income there has increased by nearly one billion dollars.

To me, this is somewhat reassuring because of the big players in the advertising sector, Google is the one most at risk and most likely to be disrupted.

And it's clear that Alphabet's management isn't afraid to disrupt this advertising business. The market is not liking the fact that this change seems to be happening at a rapid pace.

I think there are things happening that the market is ignoring. As far as I remember, YouTube is a great business and much more secure than Google Search, which is being influenced by artificial intelligence.

However, there is a huge price to pay for this. In this last quarter alone, despite having so much cash, they took on another $29 billion in debt. It issued nearly $12 billion worth of new shares.

They have another $28 billion authorized that the board has authorized to issue. They will probably do that. Both of these numbers will likely continue to rise.

However, I think the market was surprised that the advertising revenue share took a hit, even though it was still growing. In fact, the main thing is that it is still growing. It simply hasn't delivered the results analysts were expecting, and that has raised some concerns that I think are unfounded.

I said, when you look at companies like Alphabet, we're hearing stories of these disruptions or big changes. I remember that interview with Sam Altman a few years ago, when he was talking about possibly changing search engines.

Satya Nadella told Google to dance. They are dancing and they are somehow disrupting themselves. As an investor and as a long-term investor, I think that's what we want, right?

It won't be limited to 10 blue links forever. So what will it be? AI mode, AI or whatever it's called. It seems like people are using them more and more. Look, the numbers are a little vague because they combine so many different things, but people are using Google products more than ever.

But, they are not able to make a profit that way.

This is not a long-term problem. The market sees Alphabet as a toy boat in a bathtub. But in reality, this business is a warship at sea, and you can't turn a warship around in three minutes.

Therefore, you need to have the ability to see far and wide and analyze various signals coming from the ground, the coast, or space. They are really very good at it. I think Alphabet understands that given the nature of their business, they can't just be a stock provider like Microsoft.

But Alphabet's structure is such that they have to innovate at the frontier model level, and this has served them very well. They have increased their advertising business. I mean, the advertising business is still in pretty good shape.

The measurements are correct. Only the profit margin has decreased slightly. However, if you manage that battleship, you will like this compromise. You know that the search system won't last forever.

You understand which way the wind is blowing. So what will you do? You will invest in technology that is going to be the next generation of technology. I think Alphabet has done a great job in creating a model that is capable of competing with any model from Anthropic, OpenAI, and Meta.

Jason, looking at the 13 percent drop in Google or Alphabet stock, do you see it as a buying opportunity, or is it a sign that the market is getting a little bit more reluctant to turn the tide of this giant ship?

Yes, I try to follow David Gardner's thinking a bit when it comes to markets. When the market does something like this, it is usually right. And I think the company is reevaluating itself for all sorts of reasons that we should seriously consider.

Moreover, we should think about the issue more holistically, going beyond today's narrow, double-digit, or about 13 percent, price decline. What does this mean in terms of business valuation?

As I step away from here and think about its trajectory, I think about the things Asit was talking about—the turning of this great ship, the willingness to change itself, and the power of what's going to matter in 10 years.

I think this is probably a really good time to buy shares. But a word of caution: this is still a huge company. Those who have a lot of investments in index funds should be careful not to create additional risk by buying new shares.

But there's also Broadcom and Google. I think it was about a $122 billion deal, half of which was backed by those two companies. This is for hardware, right? Alphabet, Amazon, Microsoft.