Alphabet (GOOG)

The sleeper story is cash: TTM free cash flow fell from $53.3B to $19.7B in one quarter while operating cash flow barely moved, and CapEx guidance for 2027 is already flagged to 'increase significantly' before we even know the number. The obvious headline, Cloud +103% and 'the highest query growth in five years', is real, but Search and Other revenue printed the exact same $63.3B dollar figure this quarter as last, and management finally admitted on the call that AI mode's query growth is diluting monetization, not just adding incremental queries as previously framed. The binding constraint right now isn't demand, it's compute allocation and capital discipline: Google is building TPU inventory against signed contracts, leasing third-party capacity at a guided margin cost into Q4, and still won't tell you whether the TPU systems business, now material enough to move the Cloud P&L, is accretive or dilutive to the 36.2% segment margin. The most revealing line of the call: 'On TPU systems and margins, we don't break out margins for individual products or infrastructure components', said in near-identical form in back-to-back quarters while the business scales into the tens of billions. My view changes if Q4 free cash flow snaps back materially as TPU billings catch up to the inventory build and management finally gives even a directional margin signal on TPU systems; until then, I'd treat the cash flow statement, not the income statement, as the real scoreboard here.