$GOOGL · Ale's World of Stocks · 2026-11-03

Today we're going to talk about one of the most monopolistic and dominant technology companies on Earth: Google, with the trading symbol GOOGL, which has just experienced what may be the worst earnings reaction in its corporate history, losing about half a trillion dollars of its market value after Wall Street panicked over the decline in GAP earnings and negative free cash flow resulting from their increased spending on artificial intelligence.

However, when looking at the details, CEO Sundar Pichai confirmed that Google had officially crossed the half-trillion-dollar mark in annual revenue, achieving a thirteenth consecutive quarter of double-digit revenue growth, while cloud profits tripled.

In our new November analysis of three discounted post-earnings stocks, Google easily claimed its place as my favorite and least risky investment choice of the entire group.

So today we will do this in-depth analysis to unmask the accounting illusion behind the lower earnings, explain why their AI chips could be a game-changer, and find out why Wall Street made a huge mistake by abandoning the stock.

Looking at the stock chart, we can see how severe the sell-off was after the earnings announcement, causing the stock to drop by about 20% in the last month alone.

Again, this is a stock that rarely falls in the base, but when it does, as it is now with a drop of more than 30% from its highs, it is one of those opportunities that you really should take advantage of.

I mean, we're talking about hundreds of billions of dollars that have completely vanished from the market value within days. The first headline is a 26% year-on-year decline in earnings per share according to Generally Accepted Accounting Principles (GAAP), which also came in below analysts' estimates.

The second headline is that Google's free cash flow turned red, burning more than $9 billion this quarter, as capital expenditures surged to $51.4 billion in just three months, with their AI spending ramping up to around $200 billion for 2026.

This is obviously a huge amount. I am not trying to downplay any of that. We are talking about huge fluctuations here in terms of massive spending, large cash burn, and also declining profits.

But here, again, as long-term investors, we must be able to look beyond the superficial headlines, because when you delve into the operational details, you realize that much of what is happening is not at all what it seems.

Because, first and foremost, this decline in earnings per share was not practically related to Google's actual day-to-day business operations. It was merely an unrealized paper loss in their foreign investments.

Look, Google has stakes in other technology companies such as SpaceX, for example. Because some of those shares declined during the quarter, accounting rules forced Google to record a paper decline of $8.2 billion.

When you compare that to the massive $12.8 billion gain in the same quarter last year, yes, you end up with this semi-artificial paper swing of $21 billion that makes your net income look decidedly very bad.

But bear this in mind: their core operating income rose 30% year-on-year to more than $40.5 billion.

Our revenues also jumped by 25% to exceed 127.5 billion in just one quarter. This is an amazing performance. In fact, without that fluctuation in investments, their net core income would have grown by 35% as well.

Now, the second issue that should be of greatest concern, in my opinion, is negative free cash flow. But even here, I understand that all this capital expenditure looks scary on the surface, but in reality it is not just a burning of cash to save a business from complete collapse.

Instead, Google is a profit-making machine. They are among the best in the world in this field, having generated more than $42 billion in net cash from operations in the past three months alone.

Therefore, the only reason free cash flow is negative is that management deliberately reinvests every dollar it earns, and even more, in physical data centers and custom chips that make Google a great business to hold for the long term.

In fact, their demand for AI computing is so enormous that their backlog of commercial orders has literally ballooned to more than half a trillion dollars.

In other words, companies cannot be satisfied with what Google offers. Therefore, this spending is really necessary at this stage if you want to be able to meet all those huge demands.

Honestly, I would like to ask the pessimists, what did you expect Google to do in this scenario? If companies want to pay you more than half a trillion dollars for any service you provide, does that mean you would refuse all those requests?

Or will you invest in yourself to scale your business enough to actually meet all that demand?

Obviously, as you know, anyone with a little sense would choose the second option in this scenario. Well, that's exactly what Google does. Look, at this point, I think you really can't find any pessimistic viewpoint that still carries any weight here.

I mean, for everyone who has been saying for a long time that intelligent chatbots, for example, would kill Google search, look at what all these investments in artificial intelligence have achieved for them.

By integrating artificial intelligence, they succeeded in increasing Google's search revenue by a 12% year-on-year increase. It's a huge undertaking. So, not only are they being disrupted, but they are still growing at insane rates relative to their already dominant size.

In fact, Google has not only maintained its position as the market leader, but management also indicated that search queries have grown at their fastest rate in more than 5 years.

How crazy is this? As a result, total advertising revenue also increased by 11%. That's nearly 100 billion in one quarter, while YouTube Music and Premium subscribers have surpassed 150 million.

Gemini now has more than one billion monthly active users, processing 32 billion tokens per minute across all their models. So, once again, Google is not being disrupted by artificial intelligence.

They are already using it to make search and all their products more appealing, driving more ad clicks than ever before. They are stronger than ever.

And this is even without considering their crown jewel, such as Google Cloud, where all this infrastructure spending will pay off even more.

Well, in this quarter, Google Cloud's revenues didn't just grow. Its size has literally doubled, rising 103 % year-on-year to exceed $30 billion.

I mean, this is crazy for what is already the third largest operator in the world.

But what's crazy, and perhaps even crazier, is how that translates into profits, with cloud operating profits more than tripling from $3.6 billion last year to more than $11.1 billion this quarter, with margins expanding to 36.2%.

The main driver behind that explosive cloud profitability is Google's proprietary hardware technology, their Tensor Processing Units (TPUs). Look, unlike other tech giants who have to pay huge sums for Nvidia's graphics processing units, Google actually designs its own AI chips as well. They can use both.

Since they have now designed their own chips, their cloud executive stated that AI data centers running on these custom chips can now recoup their costs twice as fast as when paying high prices for graphics processing units like those from Nvidia.

This allows them to compete on price in the field of artificial intelligence computing, and it also allows them to train their own Gemini models and process AI requests for their businesses at a fraction of the cost that other competitors might pay.

Therefore, it is also a major differentiating factor. Because of all this, Google is now also marketing these chips. They are directly selling several gigawatts of TPU systems to external customers such as Anthropic, a brand-new revenue stream that analysts expect to jump from $3 billion this year to $25 billion next year. This is tremendous growth.

Speaking of the future, it remains as bright as ever, with analysts predicting sales will reach three-quarters of a trillion dollars in just two years, with operating income rapidly approaching $300 billion as well.

This is not the kind of performance that justifies such a large drop in the stock price. In fact, even the lowest analyst targets for the stock price over the next 12 months will see the stock price rise by double today, with a consensus of a rise exceeding 40% as well.

According to Yahoo Finance, the valuation now sits at a price-to-earnings-to-growth (PEG) ratio of approximately one-half, which is extremely cheap for a company of this level.

Typically, a PEG ratio of one is considered a great value. This percentage is about half of that. It's crazy that a stock like Google is trading like this.

Incidentally, there is another thing that hardly anyone mentions in the mainstream media about cash consumption, which is that Google is still sitting on a huge mountain of liquidity, with more than $265 billion in cash and tradable securities.

In short: You have an extremely low price, a huge cash reserve on their balance sheet, search engine dominance, a cloud division that is doubling in size with increasing profit margins, an internal electronic chip with enormous future potential, and new "Gemini 4" models that are attracting a lot of attention and continue to improve over time.

Um, you have a recent legal victory defeating the Justice Department's attempt to break up the advertising technology sector, which is another big deal.

Yes, you have absolute dominance in multiple and different markets including YouTube and many others. The company still represents the king of digital advertising alongside Meta.

The list goes on and on and on. I mean, we could talk about many other things. Market share for internet browsers with Chrome, and email with Gmail. I mean navigation services with Google Maps.

There are many things. They even have, you know, Waymo for self-driving. There are many things that Google does, many projects in the field of artificial intelligence, especially in biotechnology, and they invest in many other companies as well.

They form strategic partnerships wherever you look.

It is truly a very ambitious and innovative company. It is not slowing down and the stock price is incredibly low and very cheap in my opinion. So, yes, for me this is easily one of the most obvious low-price buying opportunities I can find in the entire market right now.

I simply believe that the stock is being traded at a bargain valuation.

Anyway, I really admire him. But hey, remember that Google was our least-risk pick from the entire "November Stocks Diminish" episode.