$GOOGL · The Motley Fool · 2026-11-06

I believe that advertising business will surpass Google's revenue by the next quarter, which is amazing.

However , I still think the market misunderstands Meta's business because, unlike Microsoft, Amazon, or Google Alphabet, it doesn't have a cloud business that allows it to say, "Look, we're spending a certain amount and generating revenue through our cloud business."

So, I need to know. I've repeated myself a lot when talking about Meta over the past couple of weeks, but it's one of those companies that, just like Google next year (and maybe we'll talk about Google in this video, who knows), is a very good company that's trading at very attractive prices for me.

Well, that paves the way for the first arrow I'm going to talk about today. I must talk about Alphabet, Google's parent company, right? I mean, this is perhaps one of the clearest examples of what we've been doing, given the collapse we've seen in the last few weeks, especially after the earnings announcement.

Alphabet, also known as Google, is still largely dependent on advertising. We have a search engine, YouTube, and a vast advertising network that makes up the bulk of our revenue.

And of course, we have Google Cloud, the third largest provider of cloud computing services alongside Amazon (AWS) and Microsoft Azure.

Alphabet has worked on developing its own artificial intelligence models , such as the Gemini model, and has made huge profits from them. This model was fundamental to running the consumer chatbot application, as well as the AI layer built directly into Google's search engine itself.

To give some figures, Google Cloud's revenue more than doubled, and its business volume grew by more than 100% year-on-year to reach an estimated $30 billion.

Total revenues increased by 25% year-on-year. In other words, Alphabet's investments in artificial intelligence are delivering tangible business results at the heart of its operations.

Revenue came in slightly higher than expected. The results came in slightly below what analysts had predicted . Earnings per share came in at $2.12, below the $3.02 estimate predicted by analysts.

Net income also declined slightly, mainly due to the revaluation of Alphabet's investments, including its stake in SpaceX. Therefore, it is important to note that. If you are a shareholder in Alphabet, you may be wondering what happened. This was one of the main reasons.

The other thing that didn't sit well with the market, and with me personally as a long-time Alphabet shareholder , was that free cash flow reached a negative $9 billion. This is much worse than analysts predicted.

Therefore, it can be said that this quarter was difficult, although the company's core business is still growing . Of course, immediately after Alphabet's announcement, we saw a sharp drop in its shares, resulting in a loss of hundreds of dollars. With billions of dollars in market value.

Alphabet experienced its worst daily drop since going public in 2004. This drop broke the previous record set in March 2020. So , as you know, there are several contributing factors.

Research growth has slowed down a bit, and one of the reasons for this is their artificial intelligence system.

Therefore , as you know, the search results you see on Google, and those initial AI results, are experiencing a slight decrease in consumer use in the last quarter. It is clear that we are seeing increasing competition from artificial intelligence agents in the field of research.

This is also noteworthy. This does not mean that Alphabet’s overall footprint in the field of research has declined, but it is something worth noting. As I mentioned, the revaluation of their investment in SpaceX had an impact on net profit in the quarter.

One thing I conclude from this, as a long- term shareholder in Alphabet, is that I will not reduce my stake. I do not own any stake in this sector.

I think that over the past few years we have seen almost unconditional rewards from the shares of giant technology companies, and indeed from others in this field, for spending related to artificial intelligence.

Alphabet was among those companies viewed as a reliable source of cumulative growth with minimal doubt . And I still believe that it is the same in the long run .

But I truly believe that what we are seeing is that investors want to see, as they say, the evidence in the results. They want to see the growth figures actually materialize, as we are seeing this massive increase in capital spending from Big Tech companies, and what they are investing in artificial intelligence, so we are once again seeing pressure on cash flow, and pressure on profitability.

I don't think we're at a point where artificial intelligence will kill off Google's search engine. I think Alphabet's investments in artificial intelligence are important. I believe it drives the company's underlying growth .

Once again, revenue growth is strong, and cloud computing business has more than doubled.

But I think what we are seeing is growth expectations returning to normal. There is a growing understanding that the amount of money companies like Alphabet are spending to maintain their role and position in artificial intelligence, at least for the next few quarters, will affect their profits and cash flow. This may not be satisfactory for the market.

I believe that's the key to its long-term growth. I believe it is key to Alphabet's long-term growth. Well , but certainly, as you know, the market didn't like what it saw, at least not from this latest report.

I'm not going to change my stance towards Alphabet, but as you know, it was a difficult quarter in some respects for the company.

I'm also a fan of Alphabet. I think we are now facing a company where, in a year or so, we may see that Google Cloud is bigger than search, which is great.

It may sound strange to say, but Google Cloud's revenue has more than doubled year-on-year , and profit margins have expanded slightly.

It is true that the search volume has decreased, as I mentioned. Artificial intelligence, I mean, is becoming more popular, but they are not making profits from it. As well as traditional research, but they said this will increase soon.

They also said that search query growth was the highest this quarter compared to the past five years. So, it's clear that Google search is still strong. The only problem is that it's not generating profits , but this is the first quarter ever , I think, in which search revenue is less than 50% of the business.

Now , some are saying: "This is a very pessimistic indicator." But no, it makes sense that Google Cloud's revenues have doubled to reach $30 billion currently, and continue to grow.

The backlog of orders also exceeds half a trillion dollars. The Tensor Processing Unit (TPU ) business is also experiencing rapid growth.

So, as happened last year, I think Google's stock price is overvalued, while the company's performance is improving significantly, in my opinion, given the diversification of its activities.

Therefore, her work will not be limited to research only in the future.

Yes, I think that's correct. As you know, as long-term investors, we can never get a clear picture of any company's performance from just one quarter. Of course, the past few weeks have been tough for Alphabet's stock market and other stocks.

But, as I pointed out, this company may still be achieving core efficiencies thanks to artificial intelligence. I mean, the AI model may achieve mixed results, but Alphabet's investment in Gemini is still driving the core advertising business forward.

It is contributing significantly to the growth we are seeing in the field of cloud computing.

I still generally believe that these are significant gains for the company in the long run. But I think we're at a stage where excessive spending is finally affecting some key figures, aren't we? In cash flow, profit margins and profitability.

I think the deal that many of the executives at these companies, including Alphabet, have made is their willingness to endure some short-term difficulties in order to maintain their long-term competitiveness.

Yes, if we look at their business, it makes sense for them to spend if the return on invested capital remains significantly higher than the cost of capital. I think it would be foolish not to invest.

As we mentioned today, we have seen mixed reports from companies considered among the strongest financial companies in the world, such as Meta and Alphabet.

Alphabet spends huge sums on AI infrastructure, and is penalized when a segment of its core business shows the first signs that AI may be slowing its growth a little.