[00:01] earnings. One of them got absolutely destroyed. Spoiler, it's Google. It is doing a big ouchie wouchy right now. Greg Ael is not going to be really happy
[00:14] when Warren Buffett walks in the room at Berkshire Hathway cuz this is like one of his first big buys. And holy smokes, people thought he was striking a deal when he picked up some Google shares at like a 7% discount back at like the $356
[00:28] range. Here we are sitting at $293 in the aftermarket. What happened to get a the aftermarket. What happened to get a $4 trillion company to fall 8.7% intraday? Holy smokes. And then obviously we got Microsoft which beat
[00:44] but rejected the two or the 562 line which is actually a line that specific line is what we have been targeting for Microsoft. We're like we are going to 565 baby. That's where we've put in our daily digest and our alpha reports. And
[01:00] there's the line. It actually hit 565 to the penny right above that line. Uh and uh now you know it's kind of getting weighed down by Google. So what's happening? Well, obviously we know what's happening. A coupon code is
[01:14] the actual details though. That is true at reinvest one.com. Here's what happened at Google. This is all about an expectations pooper duper. search missed expectations pooper duper. search missed by 2.3%. And there is a chance they are
[01:27] trying to lie to us. Okay, I hate to say this. I don't like to call people liars. I want you to fact check this, okay? But they're not telling us that searches are
[01:39] up year-over-year at the highest rate they have been in the last 5 years. They are specifically using the following wording, and I think there's a reason for this. They say our investments are driving overall search query growth,
[01:56] including commercial queries. In fact, our year-over-year growth rate is the highest it's been in the last 5 years. Well, it turns out queries are a little different than searches. I believe, fact me on this, but I believe that queries
[02:10] me on this, but I believe that queries include AI overview chats uh and the AI mode as well as traditional searches. So, in other words, if you go Google something, uh, oh, I don't know, like, uh, let's just Google, is the Pope
[02:24] uh, let's just Google, is the Pope Catholic? Okay. And then I get an overview response, which is this right here. Yes, the Pope is Catholic. Oh, then I go right here. I go, are you sure? Okay. Now, I'm chatting in here.
[02:39] Yes, the Pope is definitely Catholic. I don't know about that. And each of these could potentially be deemed a query. To clarify and to correct the time timeline, the current pope is Pope What is Are you correcting yourself? Pope
[02:54] Francis passed away. Oh, yeah. Pope Francis who was elected remains the current pope. Boy, that is embarrassing when somebody is talking about your stock being down 8%. [laughter] And you can't even get the sample right.
[03:07] But anyway, the point is, notice how here none of these are ads, right? None of these are ads. In fact, I'm literally trapped in this AI mode that has zero ads. I like I can't even scroll down to ads. As soon as you click the show more
[03:22] button, you get locked into the the little, you know, section where you're not going to get search results or ads. Okay. Now, obviously, you know, maybe uh the whole point is that you're not going to get ads about the the Pope. So, you
[03:35] know, coffee mugs for Christmas for sale. Okay. some really rich SEO kind of sponsored results right at the top. But let's say I want to chat with the AI
[03:47] overview. Let's go in here. See, this is where they're trying to get some of those sponsored results into here. The question is, are those sponsored? Let's go in and talk to it. Uh are these um which one is microwave safe? Let's just
[04:02] and we'll see a difference here between Microsoft and Google. So severally the blah blah blah blah blah blah blah blah. Okay, we don't know which of these are
[04:14] sponsored uh versus the actual ad listing. Are these sponsored results in the chat and what investors want? No, these are not sponsored results. See,
[04:27] that means no cut for Google unless obviously it's lying to me. But the point is in these chats, and this was my suspicion, none of this stuff in the chat is sponsored. Why is that a problem? Well, it's a problem because
[04:41] Google makes the vast majority of its money from search advertising. It's right here. Google search and other YouTube ads and Google network. Google network or like ads on websites. That's basically stalled in growth. You've got
[04:56] almost no growth here. YouTube ads only went up 9.2 2% on an election cycle. That's crazy. Okay, that's crazy. On an election cycle, that's like a normal growth year or even a slower normal growth year, you know. And then Google
[05:11] search was technically positive 11.9% but it missed expectations. Why does but it missed expectations. Why does that matter? It matters because 75% of that matter? It matters because 75% of Google's entire revenue is ads.
[05:25] Google's entire revenue is ads. of that 75% 73% is search advertising and websites. So in other words, a massive amount of their total revenues, more than half of their total revenues come from those little search queries.
[05:38] So when they tell you, "Oh yeah, search queries are at all-time high," that implies, "Oh, that means AI search ads should be going to all-time highs, right?" Not necessarily, man. Because a they don't have sponsored results in
[05:51] this chat. And once you're in this chat, you're locked out of all the other ads. cananibnibalizing, which is a risk. And I think that's somewhat what investors are reacting to because it's the biggest portion of the business that so far has
[06:04] done really well. You know, a lot of people, myself included, are like, "Ah be good for Google. Like, that's going to kind of kill Google search, isn't to kind of kill Google search, isn't it?" And actually, in 23 and 24 and 25,
[06:16] revenues have grown and grown and grown and grown. They've done really well. Some people rumor that what's happening is Google is doing everything they can to place more ads and to charge people more money for ads to squeeze the last
[06:30] sort of leg of growth out of search. That's I think why when Google search That's I think why when Google search comes in at a 2.3% miss that sounds like the advertising components that are missing. Search misses 2.3%. Ad revenue
[06:44] misses 1.9%. Google ad revenue misses 1.9%. services missed 2.1% which includes subscriptions to bypass ads. So operating income is down 6%. Now cloudbeat that's great. That's their return on investing in their own TPUs or
[07:01] other TPUs or capex or whatever. That's fantastic, right? Like they're still fantastic, right? Like they're still investing in AI. This is not a sign that the AI industry is going to put Google raised their capex guide 4% for this
[07:16] year, but the timing uh of of their payments and and this change towards leasing uh as well as some of the TPU sales they've they've been doing has miss led to a miss in sort of the timing of this result. Think that's actually
[07:30] Q3. It's throwing me off a little bit because they just reported Q3. There we go. So that led to a miss over here on in other words they're still spending more but the timing of it just didn't show up in this quarter and so people
[07:42] are wondering like oh my gosh are they cutting on capex they're spending more problem is they're monetizing the ads at a lower percentage than expected and that they're doing which is in my opinion very anthropic like is they're
[07:56] coming in here and they're separating this video is this sponsor is brought to this video is this sponsor is brought to you by meet.com/silo. Wait a second. Points for stocks. You may have heard about our sponsor, Silo,
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[10:46] is they're coming in here and they're separating out alphabet level activities. And that's basically AI research and development which on their earnings call they're bragging about how great their new Argon model is which
[10:59] great yes Argon and Carbon one of these sits at the top of hugging face it mostly the open weights but they're bragging about how uh their new model AI carbon is Google's strongest in test with the government it outperforms argon
[11:14] uh it's the first to roll out to uh first rolls out to cyber partners this is you know crushing it these models are great, blah blah blah, whatever. That's great. But the investment they are making into that is getting itemized
[11:27] making into that is getting itemized over here is a $7.6 billion R&D loss on top of the negative cash flow that we're seeing. If we jump on over to cash flow, we are now at negative cash flow. Last year, we had positive $25 billion of
[11:39] cash flow. We're now at negative9 billion of cash flow. Last year, they repurchased 11.5 billion of stock. this year or this quarter this year they year or this quarter this year they issue $29 billion of debt and $12.3
[11:53] billion of stock. So they're sucking as opposed to vacuuming their negative cash guide and the biggest portion responsible for more than half of the business is missing expectations. So
[12:06] is Google down? Are they going bankrupt?" No, they're not going bankrupt. They've got $126 billion in cash. Uh or sorry, last year they had $126 billion of cash. Now they actually have $256 billion. They got plenty of
[12:20] freaking cash. They got bills of 125 billion. They've got long-term debt of another 191 billion. They've got plenty of cash to deal with this. And they are of cash to deal with this. And they are still forecasting capex of between 195
[12:32] to $25 billion for the year. In fairness, some of the expectations were around $22 billion. So some people are saying, I don't know did I mean they raised but we were expecting them to raise more. So that yes, they raised 4%
[12:45] but there was a thought that they'd raise more up to 202 billion. That'd be about 1% more. So maybe a 1% miss compared to some of those analyst performance obligations, their backlog sits at $561 billion, which is
[12:59] exceptionally strong. That is very very good. Uh and if we compare this to Microsoft, we can get a little bit more color as to why Microsoft is not suffering the way Google is. And that's why I want to lump these two together.
[13:11] do fundamental analysis, make sure to join us every day in the course member live streams. We do technical analysis, fundamental analysis, and we also share uh our portfolio transparently in terms of what we're buying, what we're
[13:25] selling, options that we're trading, when we trade them. Uh and uh we'd love to see you in our reinvest terminal that comes out later this year. We're releasing a whole rewrite of uh the application suites that we have and are
[13:37] excited about them. We hope you take advantage of the coupon code expiring on Friday. If as long as you join in 2026 though, you'll get lifetime access and you'll keep that lifetime access. Once we get into 2027, we're moving into an
[13:51] annual recurring revenue model. Uh and so that'll be a game changer for the reinvest terminal. Let's go into Microsoft though. So Microsoft is a very different situation than Google. See, at Microsoft, the biggest portion of
[14:06] Microsoft uh agents and infrastructure grew year-over-year. You could see the growth right here. The smallest portion of their business shrunk. The smallest portion of their business is devices and consumer like Xbox and phones. So, at
[14:20] business grew and the smallest part shrunk. At Google, exactly the opposite happens. Google, we find that the biggest part of the business missed
[14:33] revenue expectations and the smallest part is ultimately what ended up growing. I think this is why you have Microsoft up 2.6% and Google now down 9%. We do have this hopeful line will
[14:48] recapture tomorrow at $296 for Google. Google has this chance of weighing on the broader market, but I honestly think the data that we're getting here indicates the AI boom is full speed ahead. The problem is not the
[15:03] AI boom. The problem is Google itself. And I'm not trying to dish on Google. stock. And I want to be really transparent here. I don't own Google stock. I own Microsoft stock. I bought the dip. Uh, you know, we bought the
[15:18] dip. Well, I sold a put. Well, actually, I covered a close put, bought some dip. today. I don't need to rehash it all right now, but the point is, uh, I I'm optimistic on the overall AI buildout. I don't think what we're seeing here is a
[15:33] sign of an AI Armageddon. I think what we're seeing here is a sign that Google is actually getting disrupted by the very artificial intelligence software that's booming. Now, that's not going to be true everywhere. We know Service Now
[15:45] really a topic for a different video. Let's keep going on Microsoft here for a moment. just to see what insights we have. Microsoft has a little bit of a take this with a grain of salt. Now, I want to be clear. I own Microsoft, but I
[15:59] want to be really clear. Microsoft is doing some shenanigan stuff over here. Technically, if you go in here, we have free cash flow of $19 billion. All right. Cash from operations 58. Plant property and equipment 39 bill. But one
[16:13] of the things that Microsoft is doing that's a little funky is they're making these other investments. What the hell could$ 13 billion dollars of other investments be? Oh, I don't know. How about investments into Neoclouds, like
[16:26] another $5.3 billion over here? Uh, or upfront payments to Neoclouds for leases. You know, kind of like how when Nebius is like, "Oh, we got this upfront payment of all this billions of dollars to go buy Nvidia chips." That comes from
[16:40] somewhere. That's an upfront deposit. Where does it come from? That comes from a Microsoft investment on the balance sheet, which is different from us investing into plant property and equipment apparently. Not really.
[16:55] category. But you have to be aware of that. This is a little bit trickery because if I take out these investments and these other investments, our cash
[17:07] flow goes from 19 billion in free cash flow to zero. So, there's a little bit of a trickery here. Worth watching with a grain of salt. Uh, okay. Then, it's actually one of the things that, you know, we've been doing lately is we're
[17:22] diversifying a little bit more rather names. We're kind of spreading out over the AI enterprise basket with the exception of Google. No Google, but we're spreading out on purpose because
[17:35] we think AI is really going to lift the top largest companies, but we don't want that idiosyncratic risk like what Google was facing. That can happen at many
[17:47] companies. Okay, so uh crude compensation, these are the bills they have. $95 billion of bills. I've got 64 billion in cash uh in short-term plus 62 in receivables. Really not worried about the balance sheet at either of these
[18:00] and they've raised enough money. Balance sheets are good. They're still making money handover fist. Their operating income grew at 20.9% which is a given that their total revenue was only up 18.8%. But I want to caution you on
[18:15] this. I think it's also bull crap. Why do I think it's bull crap? Uh because they've reclassified some of their leases from 15-year to 25 year uh classifications. That's going to extend the depreciation schedules. It means
[18:29] that they are writing off less depreciation each quarter. Uh that depreciation level is still growing, but it's not growing as much as it would Depreciation. Yeah, there we go. So depreciation, you can see grew from $8
[18:43] billion to 11.7. I think if they didn't make this change, you could see another two or three billion dollars coming off and that would have directly hit these numbers here and another two or three billion off of operating income would
[18:58] have basically told you that their pricing power was maybe stable at best. So I think it's a misread to say, oh, it's definitely going up. There's definitely some nuance needed over here. So that's Microsoft. Uh we do have
[19:11] remaining performance obligations also roughly in some of those uh Google levels. Remember Google is sitting at the RPOS of oh where the heck was it? It was somewhere around like five I mean I just here $561 billion. Microsoft is at
[19:25] just here $561 billion. Microsoft is at $677 billion. Google in their earnings call is also saying they have over $1 trillion. Holy smokes in future commitments, leases and purchases. That that is tweetable man. And if you are
[19:39] not following me on X yet, oh my gosh, throw up a tweet over here. Uh, what Marll is in advance talks to buy Luentum. Oh, come on. I wanted to buy
[19:52] Lummentum. It's going to go up now. Damn. Uh, okay. Hold on a sec. So, this is uh Google, let's write this down. Google reports they have over
[20:04] one trillion in commitments on leases and AI related in commitments on leases and AI related purchases. Holy moly,
[20:16] purchases. Holy moly, that's insane. Uh but I mean that shows you how diversified this this AI boom is. It's not just anthropic. It's also is. It's not just anthropic. It's also uh you know OpenAI, it's Microsoft, it's
[20:30] uh you know OpenAI, it's Microsoft, it's AWS, it's it's all of these puppies. That's incredible. So um okay, so that gives us a breakdown So um okay, so that gives us a breakdown on Google and it gives us a breakdown on
[20:43] on Google and it gives us a breakdown on Microsoft. It somewhat explains why there are upset expectations on Google. Uh Google is not a canary in the coal mine for the broader ecosystem. This is actually exactly what SKH Heinix warned
[20:57] Heinix in their earnings call they said look one company could could go bad but so many people are spending. It's not going to change the whole industry. It's
[21:09] not going to slow down all of the spending that's going on in AI. reinvest.com for the coupon. If you like that video, check this one out. I think >> Why not advertise [music] these things that you told us here? I feel like
[21:24] see how it goes. look up to you. >> Kevin Pra there, financial analyst and YouTuber. Meet Kevin. Always great to get your take.