Here's What I'm Actually Doing After Google's Earnings

Hey everyone and welcome back to another video for today. So we had Alphabet report their quarterly figures absolutely crushed it. Now stock is down 5% at the time of recording this video. I'm still recovering from a throat infection. So bear with me. Now it's not all negative because on the flip side we do have semiconductor names that are green. Neocloud players that are green as well because of Google's earnings call. Not earnings report but earnings call. Now let's review that. We'll talk also about Service Now later in the video. And whatever Google said could of course have an impact on Amazon, on Meta, on Microsoft and all the rest. So, let's start off here with well the market because as you can see right now pre-market Google down approximately 5%, Meta is down 2.14%, we have Amazon that's down 2.2%, Nvidia is basically flat, Apple is flat here as well. and Microsoft is also flatish. Now, if we go and have a look at some of the NeoCloud players, we can see here that we have Core Scientific and Cipher that are red, but all the rest here are green. They're actually less green than a couple of minutes ago, but still they are green and whatever Google said could actually be very bullish, those names. Now Google stock right now as you can see is going to be close to that 50 on the weekly which sits at around $39. The closer we get to that in my opinion the more attractive this thing become. If we go and look at the daily we are now literally on the 200 day moving average in case someone's interested. Now as for the company itself of course it is not an expensive company. Now when you're going to look at the PE ratio of course that gets impacted especially the trading one it gets impacted by their investment in SpaceX I think SpaceX their investment is valued at around $94 billion or so right now or last time they reported. So incredible stuff but you have to look at the EPS excluding those things and you will see that for this quarter it did miss a tiny bit. Now, for me, Alphabet, Google is again one of the best companies that you can get exposure to when you're looking for AI, robotics, autonomous vehicles, uh you name it, because they do it all. They're very profitable. Although, you will see free cash flow, well, free cash flow wasn't there. But, but as we've seen with other companies, it's not that horrible. Now, of course, the reason why free cash flow is negative is one, capex buildout, but two, they're not deliberately saying, "Oh, you know what? We don't care about free cash flow anymore." No, the results are here, and the results are the Google Cloud growth story. Growth is accelerating. This quarter, it grew by 81.8%. That's an acceleration from the 63.3% growth last quarter. That's not the only thing, right? Okay. The dollar amount continues to go up and to the right. But look at margins. Margins are also improving. We're going from 33% last quarter to now close to 36%. And if you compare it from last year, 20.7% last year. And last year this was growing 31.6%. So we have here a growth story, margin expansion story. This this is what you should be paying attention to because this makes sense. Why wouldn't they continue to invest so much if this is the result? Of course, you might say, "Yeah, but what about two years down the line? What about three years down the line?" Right? What's the return on investment? What's the return on invested capital? Well, I I do believe that Google knows what they're doing and right now the numbers show that they should continue to invest heavily. Now, if you want to have access to all of this data, which gets updated extremely quickly, especially during the earning season, you can go and check out our friendly partner fiscal.ai. There's a link down in the description and it pin comment. You'll get 15% off. I know many of you have tried it out, but if you're new here, you want to try it out. Earning season is definitely the best time to try out uh the platform. There's a link below. Now, I'll show you here the free cash flow. You can see that well this is the number that scares the market. Right? If we put it all the way back to 2019, you know what? Let's put it all the way back. You can see you can see shocking, right? Negative free cash flow for a company that always had free cash flow. This this is the shocking part for Wall Street. But is it really shocking? Not really, right? Especially not if you've been following this story for quite a long time. And so if we go and have a look at the quarter as a whole, we see our revenue is up 24% year-over-year. That was a beat. Cloud growth of course a beat. Search and other ad was up 17%. YouTube ads was up 13% also a beat. I loed per share as you can see here $9.11. Huge beat. But that included a $6.26 onetime gain. Without that it would have been a small miss. Operating margin 34%. So across the board here, it's a very good quarter. It's still an excellent, excellent company. Now, as for the segments, so Google Cloud, we already talked about that. By the way, backlog $514 billion. That's up $50 billion quarter over quarter. The first TPU system sale revenue was recognized and margins more than tripled year-over-year. Search and others was up 17%. YouTube ads 13. Network was down 1% but that's usually what happens. Subscription and devices was up 15% year-over-year. Other bets still uh nothing burger here $382 million operating loss of $1.8 billion. They did launch Whimo's sixth gen vehicle. Wing has over one million deliveries completed and Isomorphic Labs raised over $2 billion. As for the of course numbers that are excellent and that show you why Google will be one of the biggest winners here, not just in AI but in everything. Over 1 billion AI mode monthly active users. 950 million Gemini app monthly active users. Daily activives tripled over the last year. 22 billion Gemini API tokens processed per minute. That's up from 16 billion last quarter. 1.7 billion unique viewers of World Cup content on YouTube. The most viewed World Cup ever, which makes sense. 500,000 advertisers on AIAX out of beta. Around 15% more conversions at similar return on ad spend. And 90% of Fortune 100 companies are now using Gemini Enterprise. So you see this is why they're spending. They're spending because they're dominating and the results are uh there. This is a company that is doing everything it can and everything it should. Although I would say that yes, cloud is doing great. TPU business is doing great. Yes, capex is increasing. Capex guide has been increased as well to now 195 to $25 billion. and they say that for 2027 they expect it to rise significantly again which means of course an impact on free cash flow. Now the one thing I'll say here is that I've been quite disappointed with the Gemini releases and the Gemini features. Now, of course, for most people, Gemini is more than good enough, right? It's just power search. It's power AI overviews, AI mode. It's good enough. But when you compare Gemini to a cloud or to a chat GPT, you can see that they're still behind in certain things, right? Connecting to other apps, they're still behind on that. They're still behind on a couple of things. And I do think that they know it. They want to accelerate the release of new models. They're already working of course on Gemini 4. So I would like to see that move a bit quicker and the results should be much much better because why shouldn't they? As for Q3 and fullear outlook, they're expecting a slight FX headwind in Q3 concentrated in search and YouTube ads. Q3 will begin lapping last year's acceleration in search performance. So tougher year-over-year comparisons ahead. As for cloud, they see significant demand expected to continue to drive strong growth. Still supply constrainted. TPU revenue ramp. Only a small portion of TPU system sale agreements recognized in 2026. The vast majority of that revenue lands in 2027. And here it is. Google plans to expand use of external third-party compute capacity in Q3 as a bridging strategy expected to create modest margin pressure near-term. Of course, that's good. The new cloud players. Now, who who is it going to be? We don't know. We don't know. We can speculate, but for now, we don't know. As for depreciation and data center operating cost, including energy, that's set to keep rising. Free cash flow expected to remain under pressure. And so, here we're reaching the end of this segment. Google amazing quarter, good comments. Why is the stock going down? Why our names like a nebuse a core wave could go up? Well, again we just talked about that the use of third party capacity could be one of the reasons. It's probably one of the reasons but also the fact that again we are seeing these numbers with a Google. We are seeing these comments on supply constraint. We are seeing these comments on demand. We are seeing these comments on capex. All of that leads to okay players like Nebis and Kore if they continue to execute correctly even an IN hell of a lot more business over the next coming quarters and years. As for why is the stock down? Well again the stock is down increasing capex free cash flow negative 2027 capex significant increase free cash flow still expected to remain under pressure. So right now, yes, the market is putting this name in, let's say, a penalty box. But do we really care that much? No. Right. The name is still up 70% over the past 12 months. It's now experiencing a draw down of 18.4%. Yes. I I would love, again, I I've said it before, $300. If you can give me $300, $310, or maybe let's say a huge gift under $300, the forward PE is going to look much better. Yes, price to free cash flow is going to look horrible, but I get to own more of an amazing company. a company that I know that when the cycle will end, right, the huge growth cycle, I don't know when it will end, but when it will end, I know that this company with a flip of the switch, just like an Amazon, they are going to turn into the most profitable businesses again. We've seen that happen before. I expect to see this happen again because at the core, this is a very, very profitable business. And well, it's just a matter of time until Wall Street notices again that maybe maybe we should not have pulled this name down. But hey, Wall Street does what Wall Street wants in the short term. In the long term, doesn't really matter. Moving on to Service Now, and that's a very important one for the whole software space. Service Now is up actually 5%. So, it's back above $100 per share at the time of making this video. still experiencing a draw down of close to 50% from the highs from the last 12 months. So $103 billion company forward PE 23 times margin wise very very good. So what went right in this case, right? Usually we talk about what went wrong. In this case, let's talk about what went right. Well, what do we get here? We get also beats across the board. Revenue up 24% year-over-year. Slight beat. Subscription revenue up 24.5% also a slight beat. Adjusted EPS 90 cents beat the estimate of 86 cents. and current RPO $13.2 billion beat the estimates of just over $13 billion. They also said that Service Now AACV surpassed a billion dollar threshold in Q2. And so, as you can see, clean overview here, we have another very good quarter by the company. They call themselves a growth company and yes, they are showing that the growth is there. Now, if we look at the trend here, subscription revenue trend over the past couple of quarters, it's also a very good one, right? If you go all the way back to Q2 2025, 22% year-over-year growth. Now we're seeing 24.5% year-over-year growth. This is accluding approximately 150 basis points of foreign exchange tailwinds resulting in 23% constant currency growth. Still better than last year and still better than last quarter. As for net new ACB contribution mix, we see here technology workflows 48%, CRM and industry core business 32% and creator workflows sits at 20%. Now what are the revenue outperforming drivers and the gross margin inferences? We have federal demand acceleration. So they saw strong US federal government activity accelerated on premise subscription revenue from Q3 to Q2. Organic net new contract volume exceeded internal forecast across major workflow categories and 123 deals of over $1 million net new ACV that's up 40% year-over-year and 18 of top 20 deals included eight plus products. As for gross margin, subscription gross margin non-GAAP subscription gross margin was 80.5% versus 83% in Q2 2025. hyperscaler infrastructure faster than planned customer deployment on hyperscaler cloud partnerships and they've seen accelerated enterprise AI adoption increased processing usage in the near term. As for the AI monetization and control panel so we've talked about the over1 $1 billion AI ACV milestone they are seeing customers which Aentic AI in production increase 9fold over the last 9 months. the first time aentic AI buyer deal volume rose over 45% year-over-year. And as for AI control tower traction, over 500 customers active on AI control tower within 6 months, unifies visibility, risk governance, and security across enterprise AI deployments. The co said the following thing. With our AI control tower as the market standard, Agentic deployments of Service Now AI increased ninefold in just 9 months. Our 29 billion in remaining performance obligations is fueled by longer customer commitments and skyrocketing demand from our partner ecosystem. As for the CFO, once again, we beat the high end of our guidance range across every topline and profitability metric. In an environment where most enterprises are still searching for AI's return on investment, Service Now is the platform delivering it. Pretty strong comments during the call. Again, reassuring that this whole SAS apocalypse, it doesn't affect Service Now. As for customers generating over $5 million in ACV, which is annual contract value, that grew to 658 in Q2, up 23% year-over-year, while average ACV within this cohort rose to 15.2 million. And so they have seen 98% renewal rate. Training 12 months gap revenues were distributed 63% North America, 26% Europe, Middle East, Africa, and 11% APAC and others. and they've raised guidance for fiscal year 2026 when it comes to subscription revenue. So they expect here 22.5% year-over-year growth or 21% on a constant currency basis. As for the rest, current RPO growth did beat expectations. They're expecting 20% for Q3. Expectations were between 18 to 19% or so. and fullear non-GAAP operating margin was maintained at 31.5% and free cash flow margin at 35%. Now, if we look at the stock itself here on the weekly, it's a bit in no man's land under all of the moving averages. If we look at the daily, we can see that the stock is going to try to go back above that 50 and that 100 day moving average, which sits at 103 and well, both of them 103, $104 or so. Right now, as you can see, pre-market when I'm filming this, it sits at $100. So, all in all, that's about it for me. We had Google with a monster report. Of course, some of the comments, some of the results, capex free cash flow does impact the narrative right now, but I do think that it just reinforces this whole AI cycle more and more. As for service now, does this mean that every other software company out there is going to beat and raise? Probably not. Some are better than others. That's about it for me in today's video. Hopefully, I'll feel better tomorrow and then we'll be back in full force next week for more live streams. Hope you all have a wonderful rest of your day. See you all in the next one. Bye-bye.