Google Cloud revenue doubled, but the stock price was hammered—what exactly is the market worried about?
Last night’s Google earnings report probably surprised many AI bulls.
Q3 revenue was $127.6 billion, up 25% year-over-year. Google Cloud revenue was $30.7 billion, soaring 103% year-over-year.
With such a large scale, the cloud business doubling in a year is indeed impressive.
But on the other hand, Google’s GAAP EPS was only $2.12. OKX predicted the market had a question before: could Google exceed $3.10 this quarter? Now the earnings report has answered that.
However, this EPS shouldn’t be viewed in isolation. Google had about $8.7 billion in equity investment losses this quarter, which dragged EPS down by about $0.55.
I’m actually more concerned about how fast it’s spending money.
Google’s capital expenditures reached $51.4 billion this quarter, and free cash flow was negative $9.07 billion, marking two consecutive quarters of negative free cash flow.
The rapid growth in cloud business shows AI demand is indeed strong. But if capital expenditures continue to rise in the coming quarters and cash flow doesn’t improve, the market will likely find it hard to keep valuing it highly.
I’m not bearish on Google just based on one earnings report, after all, both search and cloud businesses are still growing.
But if it were you, would you value Google Cloud’s doubling revenue more, or two consecutive quarters of negative free cash flow?
This is just a personal market observation and does not constitute investment advice.
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