#美股财报季 #Gate广场万圣节 Google, Microsoft, Amazon Earnings Preview: Pessimism May Prove a “Godsend”
Megacap Cloud Earnings Preview: When Valuation Science Becomes Valuation Art
Meta (NASDAQ: META) fired the opening shot of megacap cloud earnings season last week, but the results were a major disappointment — its shares plunged 9.4% for the week after earnings. Although actual free cash flow was far better than expected, the main drag on the stock was the substantial equity dilution from the issuance of new non-voting common shares.
Ahead of the flurry of Q3 earnings reports, a chart published by Bespoke Report showing the trend in 5-year CDS (credit default swap) spreads for large-cap tech stocks may provide readers with a useful starting point. Notably, the investment thesis around large-cap tech stocks is evolving: market focus appears to be shifting from traditional revenue, EPS, operating profit growth, and guidance to industry capex, free cash flow, capex growth, debt issuance and financing capacity, and companies’ long-term credit quality — namely, the trajectory of senior unsecured bonds and long-term credit ratings. CoreWeave (NASDAQ: CRWV) has a market cap of $30 billion but $50 billion in debt outstanding, and its CDS spreads are widening rapidly, making it the latest risk focus in an already troubled megacap cloud subsector.
In the current environment, sticking with companies that have higher credit quality may help mitigate some downside risk. (Meta ranks sixth among 10 companies for the widening of CDS spreads, which raises the question of who ranks sixth through tenth.) Below are YTD total returns for common shares as of the close on October 23 (Friday): Alphabet (GOOGL): +2.51%; Microsoft (MSFT): +9.02%; Amazon (AMZN): +7.44%
Alphabet (GOOGL) Alphabet is scheduled to report earnings after the market close on October 28 (Wednesday).
According to the LSEG-compiled analyst consensus, EPS is expected to be $3.01 and revenue $128.1 billion, up 5% and 25% year over year, respectively; operating profit is expected to rise 23% year over year to $42.7 billion.
GOOGL delivered exceptionally strong results last Q3 (the quarter ended September 2025): actual EPS of $2.87 far exceeded expectations of $2.33, beating estimates by 23%; operating margin beat expectations by 160 basis points, and Google Cloud was a particular standout that quarter.
This September quarter’s 5% year-over-year EPS growth faces a tough comparison with last year’s high base. In the March and June quarters this year, Anthropic’s equity appreciation (unrealized gains) distorted GOOGL’s earnings growth. The current full-year consensus EPS estimate is $20.61, implying calendar-year growth of 91% — but excluding Anthropic’s unrealized gains, GOOGL’s core operating EPS growth in 2026 should be in the 35%–40% range.
For Q4, Meta has already raised its guidance, and the consensus estimate for GOOGL is EPS of $3.36 and revenue of $143 billion, representing year-over-year growth of 19% and 25%, respectively. Meta raised the lower end of its capex guidance, indicating that megacap cloud providers remain committed to massive investment. Anthropic is expected to IPO in November, and its equity appreciation gains are expected to be recognized again in the Q3 earnings report released Wednesday evening.
Valuation: GOOGL is not expensive on a PE basis — 16 times earnings against expected growth of 91% (although that figure is distorted by Anthropic); the 2017 baseline EPS of $15.27 implies a multiple of 21.
But cash flow is the core issue: GOOGL’s free cash flow turned negative last quarter, for the first time in a long while.
As of June 30, its FCF yield had fallen to 1%, its price-to-cash-flow ratio was 21 times, and its price-to-free-cash-flow ratio was as high as 73 times.
Morningstar estimates GOOGL’s fair value/intrinsic value at $433, 25% above the current share price.
Technically, the stock has fallen below its 200-day moving average — usually not a good sign; reclaiming it and breaking above the record high of $400 would be a significant positive.
GOOGL key metrics: TTM FCF yield: 1%Capex as a share of revenue: 30%Capex as a share of operating cash flow: 71%Full-year capex guidance: $180 billion–$190 billionLong-term debt: $80 billionCredit ratings: S&P AA+ / Moody’s Aa+GOOGL faces the same issue as most megacap cloud providers: shrinking free cash flow (negative in Q2), no buybacks to support the share price, rapidly rising capex, and long-term debt surging to $80 billion from $21 billion 4–5 quarters ago. Alphabet’s private assets — Anthropic, YouTube, Waymo, and SpaceX — may provide cash for buybacks and debt repayment in the future; its high credit rating is itself a safeguard and also supports GOOGL’s valuation.
Microsoft (MSFT) Microsoft will report FY27 Q1 earnings after the market close on October 28 (Wednesday).
Analyst consensus: EPS of $4.72, revenue of $90.6 billion, and operating profit of $44 billion, up 14%, 17%, and 16% year over year, respectively. After last quarter’s (FY26 Q4) earnings report, Microsoft’s share price surged from $400 to nearly $500 — EPS beat expectations by 6%, revenue by 3%, Azure growth was better than expected, and both the Productivity and Business Processes and More Personal Computing segments beat expectations.
Consensus for next quarter (FY27 Q2, ending December 31): revenue growth of 18%, operating profit growth of 17%, and EPS growth of 17%.
The most important point in Microsoft’s financial statements is that free cash flow remains quite healthy — FCF was $19.6 billion in FY26 Q4, the quarter ended in June, while Alphabet’s and Meta’s quarterly FCF have both turned negative.
Valuation: At the current share price of $525, the stock trades at 27 times FY27 expected EPS of $19.73 (distorted by OpenAI equity appreciation in December). Expected FY27 EPS growth is just 8%, far below Microsoft’s average annual EPS growth of 20% since FY20. FY27 Q1 capex guidance is $40 billion; the full-year FY27 slides only mention that capex will increase year over year, but given FY26 spending of $115 billion and Q1 alone reaching $40 billion, FY27 capex is expected to be in the $120 billion–$160 billion range (or even higher). Morningstar currently estimates MSFT’s fair value at $600, 10%–12% above the current share price.
MSFT key metrics: FCF yield: 2%Capex as a share of revenue: 35%Capex as a share of operating cash flow: 64%FY27 capex guidance: $120 billion–$160 billionLong-term debt: $31 billion (continuing to decline from its peak of $44 billion–$45 billion in the December 2023 quarter)Credit ratings: S&P AAA / Moody’s AaaMicrosoft remains one of the very few U.S. companies to hold the highest AAA/Aaa credit ratings from both S&P and Moody’s.
Amazon (AMZN) Amazon will report Q3 2026 earnings after the market close on October 29 (Thursday). Market consensus: EPS of $1.96 and revenue of $202 billion, up 1% and 12% year over year, respectively; operating profit is expected to rise 5% year over year. Q4 consensus: EPS growth of 26% and revenue growth of 15% — Amazon is entering the quarter when Anthropic equity appreciation contributes to earnings. Like GOOGL, Amazon is also affected by Anthropic equity appreciation, so 2027 EPS is expected to decline from 2026 — with nearly all of the drop attributable to Anthropic’s non-operating gains. Amazon’s expected EPS is $12.81 for 2026 and $10.62 for 2027, based on estimates as of the end of this week. In Q2, AWS (Amazon Web Services) recorded its fastest growth in 18 quarters on the earnings call, with AWS revenue and operating margin accounting for all of the quarter’s earnings strength. Internal data show that AWS now accounts for 21% of Amazon’s total revenue but contributed 62% of operating profit in the June quarter. (Interestingly, in the December 2022 quarter, AWS accounted for just 14% of total revenue but 59% of operating profit — revenue has grown substantially, yet its profit contribution has barely changed, reflecting the industry as a whole.)
Valuation: Amazon’s current share price represents 20 times 2026 expected EPS of $21.81, and 24 times next year’s depressed EPS of $10.62. Its price-to-cash-flow ratio is 18 times based on June-quarter operating cash flow, but its price-to-free-cash-flow ratio has turned negative — because Amazon’s FCF is negative. Morningstar estimates Amazon’s fair value at $300; the current share price is $248, a discount of around 18%.
AMZN key metrics: TTM FCF yield: -1%Capex as a share of revenue: 22%Capex as a share of operating cash flow: 108%Full-year capex guidance: no specific figure provided / year-end 2026 run rate of $225 billionLong-term debt: $129 billion (as of June), versus just $51 billion last JuneCredit ratings: S&P AA / Moody’s A1
The data above make it easy to understand why Amazon has cut Amazon Fresh and Amazon Go (its brick-and-mortar formats that compete directly with Walmart) and focused on its existing Whole Foods stores — AWS is consuming enormous amounts of capital.
It will be interesting to see what happens to e-commerce and automation, but efficiency gains in e-commerce may themselves be part of Amazon’s overall AI investment. Amazon could become the first U.S. company to exceed $1 trillion in annual revenue — possibly by the end of 2027, but more likely by the end of 2028. Although Amazon has surpassed Walmart to become the largest U.S. company by annual revenue, this is not a “retail versus retail” comparison: Walmart remains the largest retailer in the U.S. (and the world), with expected FY27 revenue of around $53 billion (ending in January 2027). Amazon’s capex-to-operating-cash-flow ratio of 108% is remarkable.
Summary
When capex determines free cash flow for AI-related stocks, and free cash flow in turn becomes a core valuation variable (at least in DCF models), valuation science becomes valuation art. The current situation resembles the internet bubble of the late 1990s — when even “eyeballs” were used as a valuation metric and chaos reigned. Capex pressure will only intensify, and capex guidance will become increasingly aggressive. Amazon’s capex-to-operating-cash-flow ratio of 108% says a lot.
Ignoring the apparent valuation discounts and ranking the three companies solely by willingness to hold them, the order is:
1. Microsoft: AAA/Aaa credit ratings, a remaining free cash flow cushion, a sustained reduction in long-term debt over the past 3–4 years (debt financing costs less than equity issuance), and the lowest capex-to-operating-cash-flow ratio of the three (61%).
2. Alphabet: Neck and neck with Amazon, but its capex-to-operating-cash-flow ratio of 71% is the most important factor in the ranking. GOOGL also has investments such as SpaceX, Waymo, and YouTube — all else being equal, these assets mean GOOGL’s current share price discount to intrinsic value is greater than it appears. Alphabet’s FCF only turned negative for the first time in the June quarter. 3. Amazon: FCF has been negative for two consecutive quarters, and its capex-to-operating-cash-flow ratio of 108% is the highest of the three.
All AI-related companies making massive capex expansions could end up in this position. Amazon itself is not a bad business, but how capital allocation in e-commerce/retail (78%–80% of revenue) will be coordinated with AWS remains an open question — is e-commerce retail competing with AWS for capital, or complementing it?
The ranking by S&P and Moody’s credit ratings is exactly the same as the ranking by capex ratio.
Looking ahead to this week’s earnings, Microsoft seems the safer choice; but a capex guidance beat (especially for calendar 2027, if the company is willing to provide it) will be the decisive variable. The larger the capex increase, the lower the forward free cash flow expectations.
Notably, Meta’s capex came in below expectations, leaving quarterly FCF at just -$2 billion, far better than the market expectation of -$8.5 billion. Apollo Capital Chief Economist Torsten Slok recently wrote that outside the AI sector, the rest of the S&P 500 has “yet to see any signs of returns from AI.”
Megacap Cloud Earnings Preview: When Valuation Science Becomes Valuation Art
Meta (NASDAQ: META) fired the opening shot of megacap cloud earnings season last week, but the results were a major disappointment — its shares plunged 9.4% for the week after earnings. Although actual free cash flow was far better than expected, the main drag on the stock was the substantial equity dilution from the issuance of new non-voting common shares.
Ahead of the flurry of Q3 earnings reports, a chart published by Bespoke Report showing the trend in 5-year CDS (credit default swap) spreads for large-cap tech stocks may provide readers with a useful starting point. Notably, the investment thesis around large-cap tech stocks is evolving: market focus appears to be shifting from traditional revenue, EPS, operating profit growth, and guidance to industry capex, free cash flow, capex growth, debt issuance and financing capacity, and companies’ long-term credit quality — namely, the trajectory of senior unsecured bonds and long-term credit ratings. CoreWeave (NASDAQ: CRWV) has a market cap of $30 billion but $50 billion in debt outstanding, and its CDS spreads are widening rapidly, making it the latest risk focus in an already troubled megacap cloud subsector.
In the current environment, sticking with companies that have higher credit quality may help mitigate some downside risk. (Meta ranks sixth among 10 companies for the widening of CDS spreads, which raises the question of who ranks sixth through tenth.) Below are YTD total returns for common shares as of the close on October 23 (Friday): Alphabet (GOOGL): +2.51%; Microsoft (MSFT): +9.02%; Amazon (AMZN): +7.44%
Alphabet (GOOGL) Alphabet is scheduled to report earnings after the market close on October 28 (Wednesday).
According to the LSEG-compiled analyst consensus, EPS is expected to be $3.01 and revenue $128.1 billion, up 5% and 25% year over year, respectively; operating profit is expected to rise 23% year over year to $42.7 billion.
GOOGL delivered exceptionally strong results last Q3 (the quarter ended September 2025): actual EPS of $2.87 far exceeded expectations of $2.33, beating estimates by 23%; operating margin beat expectations by 160 basis points, and Google Cloud was a particular standout that quarter.
This September quarter’s 5% year-over-year EPS growth faces a tough comparison with last year’s high base. In the March and June quarters this year, Anthropic’s equity appreciation (unrealized gains) distorted GOOGL’s earnings growth. The current full-year consensus EPS estimate is $20.61, implying calendar-year growth of 91% — but excluding Anthropic’s unrealized gains, GOOGL’s core operating EPS growth in 2026 should be in the 35%–40% range.
For Q4, Meta has already raised its guidance, and the consensus estimate for GOOGL is EPS of $3.36 and revenue of $143 billion, representing year-over-year growth of 19% and 25%, respectively. Meta raised the lower end of its capex guidance, indicating that megacap cloud providers remain committed to massive investment. Anthropic is expected to IPO in November, and its equity appreciation gains are expected to be recognized again in the Q3 earnings report released Wednesday evening.
Valuation: GOOGL is not expensive on a PE basis — 16 times earnings against expected growth of 91% (although that figure is distorted by Anthropic); the 2017 baseline EPS of $15.27 implies a multiple of 21.
But cash flow is the core issue: GOOGL’s free cash flow turned negative last quarter, for the first time in a long while.
As of June 30, its FCF yield had fallen to 1%, its price-to-cash-flow ratio was 21 times, and its price-to-free-cash-flow ratio was as high as 73 times.
Morningstar estimates GOOGL’s fair value/intrinsic value at $433, 25% above the current share price.
Technically, the stock has fallen below its 200-day moving average — usually not a good sign; reclaiming it and breaking above the record high of $400 would be a significant positive.
GOOGL key metrics: TTM FCF yield: 1%Capex as a share of revenue: 30%Capex as a share of operating cash flow: 71%Full-year capex guidance: $180 billion–$190 billionLong-term debt: $80 billionCredit ratings: S&P AA+ / Moody’s Aa+GOOGL faces the same issue as most megacap cloud providers: shrinking free cash flow (negative in Q2), no buybacks to support the share price, rapidly rising capex, and long-term debt surging to $80 billion from $21 billion 4–5 quarters ago. Alphabet’s private assets — Anthropic, YouTube, Waymo, and SpaceX — may provide cash for buybacks and debt repayment in the future; its high credit rating is itself a safeguard and also supports GOOGL’s valuation.
Microsoft (MSFT) Microsoft will report FY27 Q1 earnings after the market close on October 28 (Wednesday).
Analyst consensus: EPS of $4.72, revenue of $90.6 billion, and operating profit of $44 billion, up 14%, 17%, and 16% year over year, respectively. After last quarter’s (FY26 Q4) earnings report, Microsoft’s share price surged from $400 to nearly $500 — EPS beat expectations by 6%, revenue by 3%, Azure growth was better than expected, and both the Productivity and Business Processes and More Personal Computing segments beat expectations.
Consensus for next quarter (FY27 Q2, ending December 31): revenue growth of 18%, operating profit growth of 17%, and EPS growth of 17%.
The most important point in Microsoft’s financial statements is that free cash flow remains quite healthy — FCF was $19.6 billion in FY26 Q4, the quarter ended in June, while Alphabet’s and Meta’s quarterly FCF have both turned negative.
Valuation: At the current share price of $525, the stock trades at 27 times FY27 expected EPS of $19.73 (distorted by OpenAI equity appreciation in December). Expected FY27 EPS growth is just 8%, far below Microsoft’s average annual EPS growth of 20% since FY20. FY27 Q1 capex guidance is $40 billion; the full-year FY27 slides only mention that capex will increase year over year, but given FY26 spending of $115 billion and Q1 alone reaching $40 billion, FY27 capex is expected to be in the $120 billion–$160 billion range (or even higher). Morningstar currently estimates MSFT’s fair value at $600, 10%–12% above the current share price.
MSFT key metrics: FCF yield: 2%Capex as a share of revenue: 35%Capex as a share of operating cash flow: 64%FY27 capex guidance: $120 billion–$160 billionLong-term debt: $31 billion (continuing to decline from its peak of $44 billion–$45 billion in the December 2023 quarter)Credit ratings: S&P AAA / Moody’s AaaMicrosoft remains one of the very few U.S. companies to hold the highest AAA/Aaa credit ratings from both S&P and Moody’s.
Amazon (AMZN) Amazon will report Q3 2026 earnings after the market close on October 29 (Thursday). Market consensus: EPS of $1.96 and revenue of $202 billion, up 1% and 12% year over year, respectively; operating profit is expected to rise 5% year over year. Q4 consensus: EPS growth of 26% and revenue growth of 15% — Amazon is entering the quarter when Anthropic equity appreciation contributes to earnings. Like GOOGL, Amazon is also affected by Anthropic equity appreciation, so 2027 EPS is expected to decline from 2026 — with nearly all of the drop attributable to Anthropic’s non-operating gains. Amazon’s expected EPS is $12.81 for 2026 and $10.62 for 2027, based on estimates as of the end of this week. In Q2, AWS (Amazon Web Services) recorded its fastest growth in 18 quarters on the earnings call, with AWS revenue and operating margin accounting for all of the quarter’s earnings strength. Internal data show that AWS now accounts for 21% of Amazon’s total revenue but contributed 62% of operating profit in the June quarter. (Interestingly, in the December 2022 quarter, AWS accounted for just 14% of total revenue but 59% of operating profit — revenue has grown substantially, yet its profit contribution has barely changed, reflecting the industry as a whole.)
Valuation: Amazon’s current share price represents 20 times 2026 expected EPS of $21.81, and 24 times next year’s depressed EPS of $10.62. Its price-to-cash-flow ratio is 18 times based on June-quarter operating cash flow, but its price-to-free-cash-flow ratio has turned negative — because Amazon’s FCF is negative. Morningstar estimates Amazon’s fair value at $300; the current share price is $248, a discount of around 18%.
AMZN key metrics: TTM FCF yield: -1%Capex as a share of revenue: 22%Capex as a share of operating cash flow: 108%Full-year capex guidance: no specific figure provided / year-end 2026 run rate of $225 billionLong-term debt: $129 billion (as of June), versus just $51 billion last JuneCredit ratings: S&P AA / Moody’s A1
The data above make it easy to understand why Amazon has cut Amazon Fresh and Amazon Go (its brick-and-mortar formats that compete directly with Walmart) and focused on its existing Whole Foods stores — AWS is consuming enormous amounts of capital.
It will be interesting to see what happens to e-commerce and automation, but efficiency gains in e-commerce may themselves be part of Amazon’s overall AI investment. Amazon could become the first U.S. company to exceed $1 trillion in annual revenue — possibly by the end of 2027, but more likely by the end of 2028. Although Amazon has surpassed Walmart to become the largest U.S. company by annual revenue, this is not a “retail versus retail” comparison: Walmart remains the largest retailer in the U.S. (and the world), with expected FY27 revenue of around $53 billion (ending in January 2027). Amazon’s capex-to-operating-cash-flow ratio of 108% is remarkable.
Summary
When capex determines free cash flow for AI-related stocks, and free cash flow in turn becomes a core valuation variable (at least in DCF models), valuation science becomes valuation art. The current situation resembles the internet bubble of the late 1990s — when even “eyeballs” were used as a valuation metric and chaos reigned. Capex pressure will only intensify, and capex guidance will become increasingly aggressive. Amazon’s capex-to-operating-cash-flow ratio of 108% says a lot.
Ignoring the apparent valuation discounts and ranking the three companies solely by willingness to hold them, the order is:
1. Microsoft: AAA/Aaa credit ratings, a remaining free cash flow cushion, a sustained reduction in long-term debt over the past 3–4 years (debt financing costs less than equity issuance), and the lowest capex-to-operating-cash-flow ratio of the three (61%).
2. Alphabet: Neck and neck with Amazon, but its capex-to-operating-cash-flow ratio of 71% is the most important factor in the ranking. GOOGL also has investments such as SpaceX, Waymo, and YouTube — all else being equal, these assets mean GOOGL’s current share price discount to intrinsic value is greater than it appears. Alphabet’s FCF only turned negative for the first time in the June quarter. 3. Amazon: FCF has been negative for two consecutive quarters, and its capex-to-operating-cash-flow ratio of 108% is the highest of the three.
All AI-related companies making massive capex expansions could end up in this position. Amazon itself is not a bad business, but how capital allocation in e-commerce/retail (78%–80% of revenue) will be coordinated with AWS remains an open question — is e-commerce retail competing with AWS for capital, or complementing it?
The ranking by S&P and Moody’s credit ratings is exactly the same as the ranking by capex ratio.
Looking ahead to this week’s earnings, Microsoft seems the safer choice; but a capex guidance beat (especially for calendar 2027, if the company is willing to provide it) will be the decisive variable. The larger the capex increase, the lower the forward free cash flow expectations.
Notably, Meta’s capex came in below expectations, leaving quarterly FCF at just -$2 billion, far better than the market expectation of -$8.5 billion. Apollo Capital Chief Economist Torsten Slok recently wrote that outside the AI sector, the rest of the S&P 500 has “yet to see any signs of returns from AI.”
