The EPS ‘Miss That Wasn’t Gave You and Me an Opportunity to Scoop Up Alphabet Cheaply
Alphabet's worst single-day stock drop ever spooked the market, but one buried line in the earnings filing tells a completely different story about where the business actually stands.
I bought more Alphabet (NASDAQ:GOOGL | GOOGL Price Prediction) on Thursday, and I bought again on Friday. Whenever this stock falls on a headline that has little to do with how Google makes money, I add. Last week’s drop followed a one-time accounting charge.
A $0.55 Accounting Hit Masked an Accelerating Quarter
Alphabet reported GAAP EPS of $2.12 against a consensus of $2.97. That miss ended a 12-quarter streak of beats. Shares fell 12.64% on earnings day, from $324.89 to $283.82. NBC News called it the stock’s worst day ever.
When I read the filing, I found the cause. A one-time $8.70 billion loss on equity securities cut net income by $6.70 billion and diluted EPS by $0.55. Other income shifted to a $8.22 billion net loss from a $12.76 billion gain a year earlier. That is a mark-to-market swing on an investment portfolio. The ad and cloud businesses sit outside that line item.
Three Reasons My Buy Button Stays Active
First, the core drivers got faster. Revenue reached $127.58 billion, up 24.6%, which made it the 13th consecutive quarter of double-digit growth. Operating income climbed 29.93% to $40.58 billion. Search and other rose 12%, and CEO Sundar Pichai said “our year-over-year query growth rate is the highest it’s been in the last five years.”
Second, Google Cloud has become a second compounding drivers. Cloud revenue hit $30.71 billion, up 103%, with operating income of $11.12 billion against $3.59 billion a year ago. The Gemini app reached 1 billion users.
Third, I pay a value multiple for growth. Alphabet trades at a trailing P/E of 12, with an earnings yield of 8.02% and return on invested capital of 29.60%. Its debt-to-equity ratio is at 0.143, and interest coverage at 175.5x. Management raised the quarterly dividend 5% to $0.22 earlier this year.
Why My Money Skips Microsoft and Amazon
Microsoft (NASDAQ:MSFT) runs a superb business, and Azure grew 48%. But I would pay a P/E of 29 and accept higher leverage than Alphabet’s, with debt-to-equity at 0.29. Amazon (NASDAQ:AMZN) grew AWS 39%, yet it trades at 33 times earnings and 337.74 times free cash flow. Alphabet gives me the fastest-growing cloud of the three at the lowest multiple.
What Could Actually Hurt This Position
Spending concerns me. Capex hit $51.36 billion, up 114.4%, and free cash flow turned negative at -$9.07 billion. Alphabet raised $28.7 billion in notes and sold $4.3 billion of Class A and $8.1 billion of Class C stock through its at-the-market program, with $27.6 billion still available. That dilutes me. Bloomberg also noted that the economics of AI Mode look shaky.
I still hold my thesis because operating cash flow came in at $42.29 billion, and the spending feeds the same Cloud segment that just doubled its revenue. The capex boom is not unique to Alphabet either; the power, cooling, and networking suppliers behind every hyperscaler data center are a story of their own, and we rounded up seven of them in a free report on the AI infrastructure buildout. I can accept negative free cash flow while that capacity turns into revenue at this pace.
Why I Keep Adding From Here
Since the report, the stock has slid to $279.84, which is 18.67% lower than a month ago, even as the business posted its best operating quarter. My next dividend arrives December 14, 2026, and I plan to reinvest it. A paper loss on someone else’s stock knocked $0.55 off Alphabet’s earnings, and I will keep buying the business that earned everything else.
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Alex Sirois is a financial writer with experience spanning both retail and institutional investing. He has written for InvestorPlace and held roles at BNY Mellon and Bernstein, giving him a perspective that bridges Main Street portfolios and Wall Street analysis.
Alex holds an MBA from George Washington University and has built his career across multiple industries, including e-commerce, education, and translation — a breadth of experience that informs how he breaks down complex financial topics for everyday investors. His writing is conversational, actionable, and grounded in long-term, buy-and-hold investing principles.
At 247 Wall St., Alex focuses on delivering analysis that is both accessible and useful, with a clear emphasis on helping readers make more informed decisions with their money.
