📉 Why Google Just Fell Over 10%

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Google Cloud just doubled. Alphabet stock fell over 10% anyway.

Welcome to earnings season, where you can grow a business by 103% and still get sent to the bin.

Alphabet $GOOG ( ▲ 1.6% ) reported Q3 earnings after the bell Wednesday, and the headline number was ugly.

EPS came in at $2.12. Wall Street wanted $2.99. A year ago it was $2.87.

Revenue rose 25% to $127.58 billion, a hair under the $127.9 billion estimate. Close, but the market doesn't grade on a curve.

So how does profit shrink while revenue grows 25%? Mostly one line item:

That's a portfolio problem. The actual business had a very different quarter.

Google Cloud revenue jumped 103% to $30.71 billion, smashing the $29.06 billion estimate.

Operating income at the unit more than tripled to $11.12 billion, up from $3.59 billion a year ago.

Companies are queuing for AI infrastructure like it's Black Friday and Google is the only shop open.

Across the whole company, operating income climbed 30% to $40.58 billion, with margins up to 31.8%.

Sundar Pichai also said Search query growth hit its fastest rate in five years, driven by AI. So much for chatbots killing Google.

The core Google Services business missed: $96.3 billion vs $98.4 billion expected, up 11%.

Still growing. Just not fast enough for a market that priced in perfection.

Capex hit $51.36 billion in a single quarter. That's roughly $560 million a day. Every day. For three months.

The result? Free cash flow swung to a $9.07 billion deficit, from a $24.55 billion surplus a year ago.

That's the number spooking investors. Alphabet is spending cash faster than it makes it, betting the AI payoff arrives before patience runs out.

Analysts are calling the drop an overreaction, saying the $2.12 EPS "badly understates" a strong quarter. But rising capex is a fair concern.

The AI engine is clearly working. The cost of building it is now eating the cash pile.

If you own $GOOG ( ▲ 1.6% ), or an S&P 500 tracker (which means you own a chunk of Alphabet), the question is simple: does all that spending turn into profit fast enough?

For context, shares were up just 2.2% this year before tonight, vs about 13.1% for the broader index. Short interest sits at a tiny 0.94% of float, so the bears aren't exactly crowding in.

The market just wants receipts.

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Microsoft $MSFT ( ▼ 0.06% ) is sitting on $677 billion of work it hasn't even done yet.

That's its commercial backlog, up 73% in a year. It's more than 7x the revenue Microsoft booked in the whole quarter.

Wall Street noticed. Shares jumped 4% after hours on Wednesday.

Microsoft's fiscal Q1 beat on basically everything that matters:

That operating income means Microsoft kept roughly 50 cents of every dollar as profit. Most companies would frame that and hang it in reception.

It also handed $10.2B back to shareholders this quarter. Nice.

The star of the show was Azure, Microsoft's cloud platform. Growth hit 48%, beating the 44.8% Wall Street pencilled in.

The wider Agents and Infra unit (new segment name, same AI money printer) brought in $76.8B, up 25%.

And the demand is real. Microsoft says customers still want more capacity than it can supply.

Exhibit A: Meta said last week it had used up all its own compute and rented more from the cloud giants than planned.

When Meta is borrowing servers, the AI arms race is fully on.

The boring stuff held up too. Microsoft 365 commercial cloud grew 18% and consumer cloud grew 17%. Analysts have flagged this "resilient growth" in software as the bit investors should like most.

Devices and Consumer shrank 3% to $15.5B.

Turns out companies are buying AI faster than people are buying laptops.

Guidance came in hot. Microsoft expects fiscal Q2 revenue of $96B to $97.1B, above the $95.63B estimate.

Azure growth is guided at 49% to 50% in constant currency. So it's speeding up, again.

The catch? Capital spending is set to top $50B, and it accelerates further in the second half of fiscal 2027.

Microsoft still expects to stay free cash flow positive for the year. The shopping spree is enormous, but the wallet is bigger.

If you own a US index fund, you own a decent chunk of Microsoft. Its results ripple straight into your portfolio.

The big question is simple: does all that AI spending keep turning into revenue this fast?

Right now, a $677B backlog says yes. The moment to pay attention is if Azure growth cools while capex keeps climbing.

Google bought YouTube for $1.65 billion. It's now worth $340 billion.

That's a roughly 200x return on a site that started as a place to upload home videos.

The price tag comes from Needham analyst Laura Martin. And she thinks $340B actually undersells it.

Martin split YouTube into two businesses and valued each like its closest public lookalike.

The ad business: $140B.

The subscription business: roughly $204B.

Add them up and you land at about $340B.

Notice which half is bigger? The subscription arm now outweighs the ad arm. The free video site is moonlighting as a Netflix.

Big enough to be worth more than Disney $DIS ( ▼ 1.08% ), Netflix $NFLX ( ▼ 0.85% ), Verizon $VZ ( ▼ 1.71% ), AT&T $T ( ▼ 1.15% ), Dell $DELL ( ▼ 1.63% ), Caterpillar $CAT ( ▲ 0.01% ) and Home Depot $HD ( ▼ 0.3% ).

That's the mouse, the red N, two phone companies and the place you buy a drill. All smaller than the site where people review headphones in their bedrooms.

Yet it's just under 10% of Alphabet's enterprise value. A side hustle bigger than Disney.

Martin flags three things her number leaves out:

Think of it as a supermarket that owns the billboard, the shop window and the till. Advertisers never have to leave.

If you hold $GOOG ( ▲ 1.6% ) or $GOOGL ( ▲ 1.34% ), you already own a slice of YouTube.

Sum-of-the-parts maths like this is how analysts argue a company is worth more than its share price suggests. The pieces may be worth more than the whole gets credit for.

The catch? The $340B borrows Reddit's and Netflix's multiples. If those stocks get cheaper, so does YouTube on paper.

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