Alphabet Must Show This on Oct. 28 or the Stock Could Stall

Alphabet must present its Q3 results on October 28th, as the focus will mainly be on Google Cloud's growth, Search performance, and capital spending. However, the most crucial line, operating cash flow, is located deeper in the report. In Q2, the company spent $44.9 billion on property and equipment, while generating $39.1 billion in cash from operations, resulting in negative free cash flow of $5.9 billion.

This is a stark contrast to the $24 billion in free cash flow generated two quarters prior. To cover the gap, Alphabet raised $49.6 billion in stocks and $20.3 billion in debt in June. The positive cloud results, including an 82% increase in revenue to $24.8 billion and cloud operating income tripling to $8.8 billion, have provided some support for the bull case.

However, the operating cash flow fell from $45.8 billion in Q1 to $39.1 billion in Q2 despite rising operating income. This could be due to a $7 billion inventory buildup and increased receivables. Until these figures improve, Alphabet is relying on Wall Street's money to fund its AI expansion, rather than its own. Management increased full-year capital expenditure guidance to $195 billion to $205 billion, up from the previous range of $180 billion to $190 billion.

The key metric to watch on October 28th is operating cash flow, and whether it moves back toward the $45 billion to $50 billion range seen in late 2025 and early 2026. If this happens, the working-capital issue may be a temporary blip, and the cloud profits will prove to be real cash. The capex budget should be self-funding, and the stock can continue to perform well.

If operating cash flow remains flat or declines further while capex increases, the AI story may be financed by shareholders, and the market might start pricing it that way. Existing shareholders have little reason to sell before the report, but those considering an investment should wait for the cash flow statement rather than the press release headline.