Time to SELL Google?

Alphabet (Google): Sell, Hold, or Buy?

The presenter says Alphabet’s shares sold off after a quarterly report that showed strong Google Cloud results but weaker-than-expected Search and YouTube results, sharply negative free cash flow, and plans for even higher AI investment.

He is not selling his Alphabet shares, but is not buying the dip either. He says the report has tested his conviction and changed how he views the stock’s risk profile.

Key Results Cited

• Google Cloud: Revenue rose 103% year over year to about $30.7 billion. Operating income increased to approximately $11.1 billion, from $3.6 billion a year earlier, while operating margin expanded from 23.7% to 36.2%. The presenter also cites a cloud order backlog of about $561 billion, while noting that backlog is not the same as realized revenue or profit.
• Search: Search and other revenue was about $63.4 billion, up 12% year over year, but below the approximately $64.9 billion analysts expected. Growth had been about 17% in the prior quarter. Management reportedly said search volume was growing at its fastest pace in five years.
• YouTube advertising: Revenue grew about 9% to $11.2 billion, below the roughly $11.4 billion estimate and slower than approximately 13% growth in the prior quarter.
• Search and YouTube together account for nearly 60% of Alphabet’s total revenue, according to the presenter, making the slowdown and estimate misses notable.
• Free cash flow (FCF): Alphabet reported negative $9.1 billion, versus analysts’ expectation of less than $3 billion negative. Trailing-12-month FCF remained positive but was described as its lowest level in more than a decade; the presenter expects it could turn negative on a 12-month basis. He considers two consecutive quarters of negative FCF unsurprising given investment spending, but says the size of the shortfall was concerning.
• Capital expenditures: Alphabet spent $51.4 billion in the quarter. Management maintained its $195–205 billion capex outlook for 2026 and signaled a “significant increase” in 2027.
• The report card was also described as showing total revenue and overall operating profit below analyst forecasts, with adjusted EPS more than 10% off expectations.

Investment Concerns and Context

• The central question is whether Alphabet’s large AI outlays will create new revenue and attractive returns, or mainly defend its existing businesses. The presenter wants evidence of monetization—not just more users, queries, or engagement—and notes that AI-generated answers may be more expensive to produce than traditional search results.
• AI assistants could change how people search, compare products, and make purchases, potentially weakening the traditional search-ad model. The presenter mentions Meta’s “Muse” as a potential competitive development, but cautions that there is not enough evidence to attribute Alphabet’s Search shortfall directly to it. Muse was reportedly available for less than a month during the quarter.
• Alphabet is integrating AI into Search, including AI Overviews and AI Mode. The presenter recognizes its technology and distribution advantages but wants proof that these features can be monetized profitably.
• As a comparison, Meta reportedly had about 26% revenue growth, with ad impressions up roughly 10% and average ad prices up about 14%. Meta also reported negative FCF for the quarter. The presenter says the comparison is imperfect but raises questions about which company is currently getting better returns from AI investment.

Presenter’s Framework: What to Watch Next

• Search revenue growth stabilizes.
• Alphabet demonstrates better monetization of AI-powered Search.
• Google Cloud continues growing without giving up its recent profitability gains.
• The company provides a clearer path to improving FCF and returning it to positive levels.
• Assess whether rising capital expenditures produce sustainable growth and attractive returns.

Position and Cautions

The presenter’s stated position is hold existing Alphabet shares, do not add at present, and do not sell based solely on this report. He says the investment case is not destroyed—Cloud is performing strongly and Alphabet retains important AI capabilities—but warns that the next few quarters will be important.

No specific share price, valuation multiple, or target is provided.

Assets and tickers mentioned: Alphabet (GOOGL/GOOG); Meta (META); Google Cloud, Search, YouTube advertising, AI infrastructure, AI assistants, and AI-related chips/TPUs.

Disclosure: The presenter says Alphabet is his largest individual holding and frames the discussion as his personal view. No explicit “not financial advice” disclaimer appears in the subtitles.

Presenter/source: Mark Roussin, CPA, on the Mark Roussin channel.