Alphabet, Meta Slump as AI Data Center Spending Erases Free Cash Flow

AI数据中心开支侵蚀自由现金流，Alphabet与Meta股价应声下挫 超大规模云服务商的现金短缺反映的是提前布局的增长性资本支出与非经常性费用，而非经营恶化，这使得Alphabet、Meta和亚马逊的交易价格大幅低于其内在价值。 Adam Khoo对Alphabet、Meta和亚马逊近期财报发布后的暴跌进行了分析，认为市场因自由现金流转负而引发的恐慌，源于未能区分损耗性的维持资本支出与高回报的增长性资本支出。在剥离法律和解金、按市值计价的账面亏损以及库存周转时机等一次性会计干扰后，他指出核心营业利润与营收增长依然十分强劲。Khoo采用标准化现金流估算，认定这三家科技巨头的交易价格均较其内在价值存在大幅折价，在给出分批买入的技术支撑位的同时，也将它们的投资置于AI革命三阶段的大框架中进行剖析。 超大规模云服务商在公布财报后遭遇剧烈抛售——Alphabet下跌13%，Meta下跌7%，亚马逊下跌7.8%——这主要是由市场对财报中自由现金流为负的恐慌所驱动。 (0:00) 底层业务增长依然稳健，Alphabet营收增长25%，Meta增长26%，亚马逊增长13%（不计汇率影响）；而现金流下滑主要受到一次性法律费用、库存增加以及提前布局的增长性资本支出的严重扭曲。 (1:43) 采用经AI基础设施支出峰值调整后的标准化自由现金流模型，Adam Khoo对Alphabet的估值约为370至377美元，Meta为900至1,200美元，亚马逊为233美元，三者均大幅低于当前股价。 (19:17) 在Khoo的AI三阶段分析框架下，市场目前正处于第一阶段（硬件赋能商获取利润，而超大规模云厂商承担沉重资本支出），预计到2027年将过渡至第二阶段，届时超大规模云厂商的资本支出将放缓，AI经常性收入将实现复合增长。 (31:50)

Adam Khoo argues that recent post-earnings sell-offs in Alphabet, Meta, and Amazon are market overreactions to negative free cash flow caused by heavy growth capital expenditures rather than operational deterioration. He contends that underlying revenues and operating profits remain robust, creating buying opportunities for long-term investors. Accounting Noise Behind Negative Free Cash Flow (1:43) The headline panic that triggered drops of 13% for Alphabet, 7% for Meta, and 7.8% for Amazon stems from quarterly free cash flow turning negative. However, Khoo highlights that core operations are intact: revenue grew 25% for Alphabet, 26% for Meta, and 13% for Amazon (excluding foreign exchange). Over the trailing twelve months, operating cash flow expanded 19% at Alphabet, 24% at Meta, and 29% at Amazon. Reported earnings and cash flow suffered from non-operational, transient headwinds rather than core business decay. Specific distortions impacted each company's quarterly results. Alphabet’s 26% EPS contraction stemmed from an unrealized mark-to-market loss on its SpaceX investment, while a 13% drop in operating cash flow reflected an EU antitrust fine and upfront inventory accumulation of proprietary Tensor Processing Unit (TPU) AI chips. Meta’s reported 37% plunge in operating income was skewed by a $9.89 billion settlement resolving teen addiction lawsuits; adjusted for this charge, operating income rose 11%. Amazon's year-over-year EPS decline faced a difficult comparison against a prior $9 billion valuation gain on Anthropic, while its operating income jumped 61%. Maintenance Versus Growth Capital Expenditures (4:38) Khoo distinguishes between maintenance capital expenditures (CapEx) and growth CapEx to explain why negative free cash flow is not inherently dangerous. Maintenance CapEx, such as an airline repairing aging planes, consumes cash merely to sustain existing operations without expanding returns. Conversely, hyperscalers are directing tens of billions into growth CapEx—primarily artificial intelligence data centers and proprietary silicon—to widen their competitive moats and generate future cash flow. Because standard discounted cash flow models project current depressed free cash flow decades ahead, they produce artificially low valuations during heavy investment cycles. Khoo advocates using normalized free cash flow, calculated by subtracting a company's 5-year average CapEx from current operating cash flow. This adjustment yields a normalized cash flow of $117.651 billion for Alphabet and roughly $79 billion for Meta, reflecting their ongoing earnings power once peak infrastructure spending tapers. Company Valuations and Support Levels (19:17) Applying normalized cash flow metrics indicates that mega-cap tech stocks trade at substantial discounts to their intrinsic values. For Alphabet, Khoo calculates an intrinsic value of approximately $370 to $377 per share against a market price of $283 (a roughly 24% discount), identifying major technical support at $274. Meta’s intrinsic value is estimated between $900 and $1,200 per share—a 31% discount from current levels—with support at its 150-period moving average. Khoo notes that Meta's $37.5 billion equity and debt raise resulted in only a minor 2.4% shareholder dilution, far less than the market's initial 12% intraday drop. Amazon is similarly undervalued, with an estimated intrinsic value of $233 against support at $226. Its apparent revenue miss was driven by shifting Prime Day into the second quarter and absorbing a $900 million currency headwind. Meanwhile, Amazon Web Services accelerated growth to 39%, operating margins expanded to a record 13.9%, and management guided for AWS expansion exceeding 40% in 2027 and 2028. Rather than attempting to pinpoint market bottoms, Khoo advocates scaling into positions across defined support levels in tranches. The Three Phases of AI Value Capture (31:50) To frame the timing of current hyperscaler capital expenditures, Khoo presents a three-phase macro model of the AI revolution. In Phase 1, semiconductor enablers and power producers capture peak industry profits while hyperscalers absorb heavy depreciation and cash flow drag. Starting around 2027, Phase 2 begins as hyperscaler CapEx growth decelerates, enabling cloud providers to compound high-margin software and compute services on their installed infrastructure. Phase 3, projected for 2029 and beyond, occurs when non-tech enterprise adopters across healthcare and industrials leverage these AI platforms to expand corporate profit margins. Khoo views the current free cash flow compression among hyperscalers as a temporary, cyclical byproduct of Phase 1 AI infrastructure investments rather than structural decline. While his discounted cash flow models project upside across Alphabet, Meta, and Amazon, the timing of share price appreciation remains dependent on market sentiment, technical support levels, and the transition toward monetization in future phases.

Adam Khoo认为，近期科技巨头因自由现金流转负引发的市场抛售属于过度恐慌；这并非核心业务恶化，而是由激进的AI增长型资本支出及一次性财务扰动所致，反而为长期投资者创造了估值折价的买入机会。 自由现金流转负与增长型资本支出 (4:38) Alphabet、Meta和Amazon在财报发布后股价分别下跌13%、7%及7.8%，主要诱因是自由现金流出现负值。Adam Khoo解释，自由现金流等于经营现金流减去资本支出（CapEx）。当前超大规模云服务商的现金流转负，并非核心业务现金流萎缩所致，而是因为企业主动投入数百亿美元建设AI数据中心等基础设施。投资者必须区分维护型资本支出（仅维持现有运营、不产生增量收益，如航空公司维护机队）与增长型资本支出（构建全新产能并扩大护城河）。当前科技巨头的支出属于后者，目的是巩固在AI领域的长期主导地位并驱动未来的经营现金流。 财报表象扭曲与核心营运指标韧性 (1:43) 分析显示三家公司的核心基本面依然稳健。Alphabet营收同比增长25%，经营利润增长30%；其三季度经营现金流下滑13%，主要受支付欧盟反垄断罚款及自研TPU芯片前期库存积压的影响。Meta营收增长26%，广告单价上升14%，尽管账面经营利润因98.9亿美元的青少年社交成瘾诉讼和解金同比下滑37%，但在剔除该一次性费用后实际增长11%；其通过股权和债务融资375亿美元支持资本开支，仅导致现有股东权益稀释2.4%，却引发股价一度下跌12%。Amazon经营利润大涨61%，AWS云业务增速达39%，创下13.9%的历史最高经营利润率；其财报中的每股收益同比下滑主要是由于前一年同期计入了Anthropic持股90亿美元的非现金未实现收益，属于基数效应。 标准化现金流模型与内在价值估算 (15:25) 针对激进资本开支导致折现现金流（DCF）模型估值失真的问题，Adam Khoo提出使用“标准化自由现金流”框架，即以最新经营现金流减去过去5年的平均资本支出。按此方法，Alphabet的标准化自由现金流为1176.51亿美元，测算出内在价值约为每股370美元（其平台Oracle估值为377美元），较283美元的市场价存在约24%的折价，关键技术支撑位在274美元和243美元。Meta的标准化自由现金流约为790亿美元，对应内在价值在每股1000至1200美元之间（Oracle基准估值为900美元），折价率约31%。Amazon的Oracle估值为233美元，回调至226美元支撑位附近同样进入低估区间。Khoo建议投资者避免一次性重仓摸底，应采取分批定投（Tranche Buying）策略在关键技术支撑位逐步建仓。 AI革命三阶段与巨头发展定位 (31:50) Adam Khoo提出了AI革命的宏观三阶段演进框架，用于解释超大规模企业当前的资本压力。在第一阶段（当前阶段），硬件赋能者（如Nvidia、AMD等半导体厂商及电力供应商）获取行业绝大部分利润，而云巨头则承担高昂的资本支出与前期折旧压力。进入第二阶段（预计2027年起），超大规模企业的资本支出增速将放缓，转而在已建成的庞大基础设施之上，通过云平台和企业AI工具实现高复利现金流回报。在第三阶段（2029年及以后），医疗、消费品和工业等非科技行业的大范围企业采纳者将借助成熟的算力工具实现全面的利润率扩张。 Adam Khoo总结指出，只要巨头的经济护城河未发生结构性损坏，周期性与会计层面的短期扰动就不应引发恐慌。然而，该投资逻辑高度依赖于科技巨头未来能否将巨额AI资本开支成功变现，以及AI第二阶段盈利加速能否按期兑现。

[4:38] Adam Khoo: Growth CAPEX allows a company to increase its economic moat, its revenue, its income, and its cash flow in the future.

[0:00] The most recent earnings report, [0:01] hyperscalers like your Amazon, your Meta [0:04] Platforms, and your Alphabet or Google [0:06] reported negative free cash flow. And [0:09] some investors are freaking out and say, [0:10] "Oh my god, they're going to die." and [0:12] selling them off. So, what should we do [0:14] as intelligent investors? How do we [0:16] value these companies? And are they [0:18] still worth investing in? Let's find out [0:20] more in this video. [0:31] We are currently in the middle of the [0:33] quarter three earnings season, and so [0:34] far it hasn't been kind to many of the [0:37] hyperscalers that I own. So, for [0:39] example, Alphabet that owns Google and [0:41] YouTube down 13%after it reported [0:45] earnings. Meta Platforms that reported a [0:47] few days ago down 7%after earnings. [0:51] Uh in fact, it was down 12%and then it [0:52] rebounded, but it's still down 7%, and [0:55] Amazon down 7.8%uh yesterday after [0:58] earnings. So, why are they all selling [1:01] off? Well, there are many reasons which [1:03] I'm going to cover in this video, but [1:05] the main reason [1:07] that's freaking investors out is that [1:09] their free cash flow [1:11] is negative, as you can see over here. [1:15] So, what does that mean? So, free cash [1:17] flow basically means how much cash they [1:20] are generating from their business [1:21] called cash from operations minus the [1:23] capital expenditure, CapEx. What's left? [1:27] That's the free cash flow. So, [1:29] ordinarily, we want a great business to [1:31] have positive free cash flow that's [1:33] growing, right? But the free cash flow [1:35] is negative. So, is it something to be [1:37] to be worried about? Well, the answer to [1:39] me is no, and I'll explain why in a [1:41] short while. But let's look at what's [1:43] great about these companies. Number one, [1:45] top line growth. I look at revenue [1:47] growth, and it's growing very well. You [1:48] can see uh Alphabet, Google up 25% [1:52] revenue growth, Meta up 26%, Amazon ex [1:55] foreign exchange uh changes is up 13%. [1:59] Next, operating income growth. So, I [2:01] like to look at operating income uh not [2:03] net income because net income can be [2:05] distorted by non-operating expenses and [2:09] income. Like, for example, mergers, [2:11] acquisitions, and so and so forth. I [2:13] like to look at operating income, right? [2:15] So, operating income was also doing very [2:17] well. Google uh growing 30%. Now, you [2:20] may see, "Hey, Meta Meta's down 37%. [2:23] Why?" [2:24] That is a one-off issue because they [2:26] paid a big Well, not a big uh actually a [2:28] small fine to settle their [2:31] uh social media addiction lawsuit, if [2:33] you recall, right? So, if you remove [2:35] that, they actually grew 11%in terms of [2:37] operating income. [2:39] Amazon growing 61%in terms of operating [2:42] income. [2:43] Now, what's more important is the [2:46] operating cash flow growth. [2:48] So, you can see Google's operating cash [2:50] flow grew at 19%uh year-on-year. Uh [2:54] sorry, last 12 months. Meta grew 24% [2:57] last 12 months. Amazon grew 29%last 12 [3:00] months. [3:02] In terms of Q3 year-on-year, Meta is up [3:04] 9%, Amazon up 19%. So, some people are [3:08] concerned that, "Hey, Google's operating [3:11] cash flow in Q3 is down 13%." Again, I'm [3:15] not concerned because this negative [3:17] number came for for from two one-off [3:21] reasons. Number one, because of the EU [3:23] fine. You know, they these these [3:25] companies get get fined all the time, [3:27] right? So, they they paid the fine in [3:29] Q3. [3:31] And their cash from operations turned [3:33] negative for this quarter because of [3:35] inventory buildup before their TPU [3:38] sales. Now, what's TPU? As you guys [3:41] know, Amazon and Google are now selling [3:45] semiconductors. In a way, they're [3:47] competing with Nvidia, right? So, [3:49] Google's [3:50] AI chips they're selling are called [3:52] TPUs. Now, before they sell the TPU, [3:56] uh they have to put it in their [3:57] inventory. And inventory causes a [3:59] negative to the cash flow because cash [4:02] is stuck in the inventory. [4:03] Later, when they sell it to the [4:05] customers, the cash will come in in [4:07] 2027. So, because of this inventory [4:10] build-up and the EU fine, it caused [4:13] their operating cash flow to go negative [4:16] for this quarter. And it's something I'm [4:18] totally not concerned about, because [4:20] it's not that the business is not doing [4:21] well. Business is doing very well [4:22] because of inventory timing and that [4:25] stupid fine, it turned negative. Now, [4:28] let me talk about the main concern that [4:30] investors have, which is the free cash [4:32] flow turned negative. Now, why am I not [4:34] concerned at all? Let me explain it with [4:37] uh some drawings. So, first of all, free [4:39] [snorts] cash flow [4:41] is equal to the operating cash flow, [4:44] operating [4:46] cash flow [4:47] minus capital expenditure, right? So, [4:51] this is the formula for free cash flow. [4:54] Now, [4:55] when a free cash flow turns negative, [4:57] there are two reasons why. [4:59] If free cash flow turns negative because [5:02] the operating cash flow is declining, [5:04] that is bad. That's a bad thing. So, [5:07] those are companies where they are [5:09] generating less and less cash for their [5:11] businesses. We don't want to invest in [5:13] [clears throat] them. We want to get out [5:14] of them, right? However, in the case of [5:16] Amazon and Meta and Microsoft and [5:19] Google, [5:20] their operating cash flow is growing [5:23] very well. So, they are generating more [5:25] cash from their business, right? [5:30] So, this is going up. But, why is their [5:32] free cash flow going down? It's because [5:35] their CapEx has gone up recently. Why [5:39] has their CapEx gone up? Because they [5:40] are investing billions and billions [5:42] building these data centers [5:45] to solidify their leadership in the AI [5:48] revolution. So, because this has gone [5:50] up, it caused this to go down [5:53] temporarily. Now, is it a good or bad [5:56] thing for a company to invest a lot in [5:59] CapEx? It depends. There are two kinds [6:01] of CapEx. The first is called [6:03] maintenance CapEx [6:05] and the second is what we call growth [6:07] CAPEX. [6:08] So, if a company has to spend more and [6:11] more on maintenance CAPEX, like for [6:13] example, an airline business, they have [6:15] to spend a lot of money to repair the [6:17] airplanes, to replace the old airplanes [6:19] with new airplanes. That's called [6:21] maintenance CAPEX. That sucks up the [6:23] cash flow. That is bad. That's why I [6:26] don't invest in airlines because they [6:27] keep spending so much money just to [6:29] maintain their current business. But, if [6:32] a company spends on growth CAPEX, which [6:34] means they invest in data centers or [6:37] they invest in [6:38] new factories, new markets, that's a [6:41] good thing because growth CAPEX will [6:43] cause what? Will cause their operating [6:46] cash flow to increase even more in the [6:49] future. And that will cause the free [6:51] cash flow to increase even more in the [6:54] future. So, in the case of the [6:55] hyperscalers, it is not maintenance [6:57] CAPEX. [6:58] It is growth CAPEX. Growth CAPEX allows [7:01] a company to increase its economic moat, [7:04] its revenue, its income, and its cash [7:05] flow in the future. So, people who are [7:08] short-term minded, "Oh my god, they're [7:09] spending so much money. Sell. Get out." [7:11] Right? But, if you're long-term minded [7:13] like me, we see it as an opportunity to [7:16] take advantage of the short-term [7:17] volatility to accumulate these [7:20] businesses to generate significant more [7:22] profits in the future. So, let me give [7:25] you an an analogy. So, let's imagine [7:27] there's a guy who, let's say, he earns a [7:31] salary of um $5,000 a month. So, that's [7:35] his cash inflow. And let's say he has to [7:37] spend on stuff, his um [7:40] monthly expenses. And he spends, let's [7:43] say, 4,000 on transportation, on food, [7:46] on entertainment. So, he's able to save [7:50] $1,000 a month. [7:53] What is this? This is, in a way, his [7:55] free cash flow. Now, imagine this guy is [7:59] very ambitious. He said, "I'm not happy [8:01] earning 5,000 a month. I want to [8:03] eventually earn 10,000, 20,000, 100,000, [8:07] you know, a million a month. What would [8:09] he do? He would have to invest in [8:11] himself. He would have to [8:14] uh spend on capex, right? So, he'll take [8:16] lots of courses. He'll He'll take an [8:18] investing course to learn to invest into [8:20] trade options, for example. He would uh [8:23] take a leadership course. He'll take an [8:24] AI course. He may get a a master's [8:27] degree, whatever it is, right? So, he [8:28] spends all this money upgrading himself. [8:31] That's called capex. So, let's imagine [8:33] that he spends [8:36] uh you know, $2,000 on himself upgrading [8:41] every month, and to uh finance it, he [8:44] takes some loans from the bank to in [8:46] order to finance all these courses. What [8:48] happens to his free cash flow? His free [8:50] cash flow will now become [8:53] uh minus $1,000. And you may say,"Oh my [8:56] god, he's now losing a thousand dollars [8:57] a month, right?"So, again, question, is [9:00] this a good thing or bad thing? It [9:01] depends on how you see it. If you're his [9:03] girlfriend and you say,"Oh, he can't [9:05] spend his money on me anymore. He can't [9:06] bring me to nice places. He's a broke [9:08] mother [9:09] right? I'm going to leave him, right?" [9:11] So, you leave the guy and find a guy who [9:13] can spend on you, and you miss out on [9:16] his future gains or his his future [9:19] increase in income. But then he gets a [9:21] new girlfriend who understands that he [9:24] is investing in himself, and in the [9:25] future he makes what, you know, a [9:27] million dollars a year, 10 million [9:29] dollars a year, [9:30] uh and then she would the second [9:32] girlfriend would benefit from it. Now, [9:33] of course, if you're a lady listening to [9:36] this, switch it around, okay? Turn [9:38] around the the genders, okay? Now, this [9:39] what happened to me. So, when I was [9:42] younger, my girlfriends were [9:44] complaining,"Oh, I don't spend enough [9:45] time with them. I don't spend so much [9:47] money on them."because I was investing [9:48] in myself. I took lots of courses on [9:50] NLP, on investing. I read lots of books. [9:53] I spent more money on books and courses [9:55] that I that I did on my earlier [9:56] girlfriends, and they left me. They [9:58] called me a broke mother right? But [10:01] today I make what, six, seven million [10:03] dollars a year, and who benefits? My [10:05] wife, because she's an intelligent [10:07] investor. Now, of course, the negative [10:09] free cash flow is not the only concern [10:12] that caused investors to sell off these [10:14] hyperscalers. There are a few other [10:15] concerns that I'd like to address right [10:17] now. Now, remember, when you own a a [10:20] stock, a business, and the share price [10:22] falls because certain fundamentals have [10:25] declined, [10:26] the question you're going to ask is is [10:28] the decline cyclical? Is it a short-term [10:31] temporary issue, or is it a long-term [10:34] structural issue that will persist? So, [10:37] if it's a temporary cyclical issue, [10:40] then no need to panic. Hold the shares [10:43] and in fact, buy more at a bigger [10:45] discount. [10:46] But, if it's a long-term structural [10:48] issue, which means the economic moat is [10:51] deteriorating, then that's a reason to [10:53] sell the stock. Okay? So, that's an [10:56] important question ask, cyclical or [10:58] structural? So, let's look at what are [11:00] the concerns and fears. [11:02] So, let's start with Alphabet, or [11:04] Google. So, there are again some other [11:06] concerns. First concern was that [11:08] earnings per share fell 26%and missed [11:12] the analyst estimates. So, what [11:15] happened? Was it temporary, or something [11:18] that's affecting the long-term business [11:21] performance, right? And the answer it is [11:23] totally a one-off temporary issue. [11:28] The reason their earnings per share fell [11:30] is because of unrealized mark-to-market [11:32] loss on Google's investment in SpaceX. [11:36] If you exclude that, their operating [11:39] income actually rose 30%. Okay? So, [11:43] that's not a concern. [11:44] Number two, their operating cash flow [11:47] fell 13%for the quarter. I already [11:49] explained it earlier on because of the [11:51] EU fine, [11:53] and because the of the inventory [11:54] build-up of their TPU AI chips before [11:58] they sell them and the cash comes in. [11:59] Again, this is a one-off cyclical issue. [12:02] No concern at all. [12:04] Now, the third issue is that [12:07] their search, as you know, Google uh [12:11] traditionally they make money on [12:13] search advertising. When you search for [12:14] things online and you get all those um [12:17] search results and you click on the [12:19] sponsored links, [12:21] that's how Google makes money, right? [12:23] So, their search growth was initially [12:26] growing at 17%. [12:29] And in this quarter, they reported 12%. [12:32] So, there's a deceleration in their [12:34] search growth, and people are freaking [12:36] out. They're like,"Oh my god, that means [12:38] that their search business is dying, is [12:41] being cannibalized by their AI [12:45] results, which are not being monetized [12:47] as well."And that's why,"Oh my god, [12:48] they're going to die. They're going to [12:50] get killed."And they're selling them [12:51] off, right? So, [12:54] here's the fact. The fact is that before [12:56] AI started, [12:58] their search growth was actually between [13:01] -2%on certain quarters to 13%on certain [13:06] quarters. That's the range before AI [13:09] started, right? Now, when AI began, [13:13] and Google launched their AI overviews [13:16] and their AI mode, which we all use [13:19] today, their search growth grew from -2 [13:23] to 13%range, grew to 17%in Q4 last year, [13:27] 19%Q1 this year, and 17%Q2 [13:32] this year. [13:34] And Q3, it slowed back to 12%. Now, is [13:39] that a bad thing? No, because at 12%, it [13:43] is still at the upper range of where it [13:47] was before AI started. [13:49] Okay? So, the sell-off doesn't make any [13:52] sense. [13:54] And the reason why their search growth [13:57] decelerated uh to 12%this quarter, there [14:01] are three reasons. [14:03] The main reason is because of the the [14:06] rebound in the US dollar, causing them [14:08] to earn less when they convert euros and [14:11] pounds back to US dollars. So, it was an [14:13] FX [14:14] uh [14:15] short-term issue, right? The second [14:17] issue is because some of the APAC retail [14:20] advertisers pulled back after the EU [14:22] scrapped their import exemption. [14:26] And media spend normalized after an [14:28] unusually strong June loaded with World [14:30] Cup matches. [14:33] The third reason, which is the smallest [14:35] reason, is because AI mode queries are [14:38] growing fast and currently monetizes at [14:41] a lower rate than classical search [14:43] results. So, it's a monetization lag, [14:46] and it's the same thing that happened [14:47] when Google shifted from uh desktop to [14:51] mobile many years ago. [14:53] So, if you really scrutinize all these [14:55] issues, you can see that there are no [14:57] signs of a declining business. The [14:58] business is growing, doing very well. [15:01] Revenue up 25%, their 13th straight [15:04] quarter of double-digit growth, Google [15:06] Cloud up 103%where their margins are up [15:09] 23%to 36%, and their search at 12% [15:13] growth is the highest in 5 years. [15:16] So, [15:18] uh is it a dying business? Is it a [15:19] declining business? Well, you make your [15:21] decision. To me, no, there's nothing [15:24] wrong with this business at all. Now, [15:25] next question is, what are the shares [15:27] worth? What's the intrinsic value? Let [15:29] me show you how I calculate the [15:31] intrinsic value of uh Google and then [15:34] later Meta and then Amazon, okay? So, [15:37] before I show you the intrinsic value [15:39] calculation, let me show you once again [15:41] uh the uh operating cash flow and the [15:45] free cash flow. So, over here you can [15:47] see that for Google or Alphabet, what's [15:49] happening? Revenue is growing very, very [15:52] nicely, right? So, that's revenue, [15:54] operating income growing very, very [15:56] nicely as well. [15:57] And operating cash flow in orange is [16:00] growing very nicely as well. [16:03] The thing that has dropped is the free [16:05] cash flow. Can you see the free cash [16:08] flow over here? Let me use a different [16:09] color. [16:11] Yeah. So, the one in dark black, you can [16:14] see that is growing, and then it dropped [16:17] here. So, this is freaking people out, [16:20] the drop in the [16:21] um [16:22] in the free cash flow. So, like I [16:24] explained, the reason the free cash flow [16:26] drop is not because the operating cash [16:29] flow drop. Operating cash flow doing [16:31] very well, it's because the capital [16:33] expenditure has gone up significantly [16:36] because of growth CAPEX. Okay? Now, how [16:39] do we calculate the intrinsic value of [16:43] of this stock? So, normally to calculate [16:45] intrinsic value, we have to project [16:49] the current free cash flow over the next [16:52] 20 years. [16:54] And then we discount it to present [16:56] value, right? But, if you do that with [16:59] the current free cash flow, you get a [17:01] very low number [17:03] because the current free cash flow is [17:06] artificially depressed by the high [17:08] CAPEX. So, to calculate a fair intrinsic [17:11] value, what must we do? [17:13] We cannot use the latest free cash flow. [17:16] We have We have to use what is called a [17:18] normalized free cash flow. So, let me [17:20] explain what that means, and you can [17:23] actually do this yourself once you [17:24] understand this. [17:25] Uh so, let me just show you the numbers [17:28] here. Let's go to the cash flow [17:29] statement. [17:31] Okay, there we are. [17:33] So, over here you can see [17:36] that this is the operating cash flow. [17:39] And you can see it's been growing, [17:41] growing, growing, growing, growing, [17:43] growing, right? And the CAPEX [17:46] capital expenditure here, [17:48] you can see it has been growing as well. [17:51] Okay? So, if you take the operating cash [17:53] flow, this minus this, you will get the [17:57] free cash flow. [18:00] Which is now very low because of the [18:03] high CAPEX. [18:04] So, to calculate the normalized free [18:07] cash flow, what I do is this. I take the [18:09] latest cash from operations, which is [18:11] this one. This is the cash [18:13] flow from operations. I take this, and I [18:16] minus the average CAPEX of the last 5 [18:20] years. So, 1 2 3 4 5. This is the last 5 [18:24] years, right? [18:26] 31 billion, 32 billion, 52 billion, 91 [18:29] billion, and 132 billion. So, I take [18:31] these five numbers, [18:33] add it together, divide by five to get [18:35] the average [18:38] capex of the last 5 years. [18:41] So, when I take the current cash from [18:43] operations minus the 5-year average, I [18:46] get the normalized free cash flow. [18:49] So, this is the number that I use to [18:52] value the business. Now, I've already [18:54] done the calculation, and what's the [18:57] answer? The answer is the normalized [18:59] free cash flow. [19:01] The normalized [19:03] free cash flow [19:06] is [19:07] for Google is 117. [19:12] 651 million, 117 billion dollars. So, we [19:15] will use this in the intrinsic value [19:17] calculator. So, to do that, let me show [19:19] you where it is. Go to the intrinsic [19:22] value calculator here. [19:27] And again, you can see if you scroll [19:31] down, and we're going to use free cash [19:34] flow. Oops, not this one. Free cash [19:36] flow. [19:37] You can see that if you project the [19:39] latest free cash flow, [19:42] which is artificially low, [19:45] you get a very [19:47] low intrinsic value, which is [19:49] unrealistic, right? We need to normalize [19:52] the free cash flow. So, we will put in [19:55] the normalized free cash flow, [19:57] which is 117.651. [20:01] This will be more realistic, okay? And [20:04] you can see the growth rate that is used [20:06] to project the business is based on the [20:09] consensus [20:11] analyst estimates provided by FactSet, [20:13] which is 18%growth the next 5 years, [20:17] and then long-term 16%growth over here. [20:20] Now, you can take those numbers, [20:23] but for me, [20:24] uh I'm usually more conservative. [20:27] Where in growth [20:29] year 6 to 10, I do not take anything [20:31] more than 15%. I will cap it at 15%. So, [20:34] I'm going to cap it at 15%here. [20:38] And then I'm going to calculate based on [20:41] this normalized free cash flow and this [20:43] lower growth rate. Calculate. Ta-da! [20:46] What do I get? I get an intrinsic value [20:49] of about $370. There you go. Now, if [20:53] this is too much work for you, you say, [20:55] "I just want a shortcut."Very simple, [20:58] you can just look at the Oracle value [21:00] that comes up with a very similar number [21:03] by normalizing the free cash flow and [21:05] adjusting the growth rates. Which is [21:07] over here. There we are. There. [21:09] So, the Oracle value is 377, which is [21:12] roughly about 370, roughly about there. [21:14] And at current share price of 283, it is [21:17] about 24%undervalued. So, a great [21:21] company, undervalued. Does it mean that [21:23] the share price will go up tomorrow the [21:25] moment Adam announces this, the price [21:27] will go up to 370 and beyond? Of course [21:30] not. All right. So, this tells you what [21:32] the shares are worth. It doesn't mean [21:35] the price will get there tomorrow. The [21:37] price can still go lower because in the [21:39] short term the price is driven by not [21:42] logic, not fundamentals, but driven by [21:45] emotions and manipulation and all kinds [21:48] of things that happen in the market. But [21:50] what it does tell me is that in the long [21:52] run, [21:53] uh Google will continue growing and [21:55] growing and growing, and it's worth 370, [21:57] which means it's going to go back to 370 [21:59] and higher over time. When that will [22:02] happen, I've got no idea. Could be next [22:04] week, could be next month, could be next [22:06] year. I don't know, right? But in the [22:08] short term, the price is going down [22:11] because of manipulation and fear, and of [22:14] course it could go lower, all right? So, [22:16] that's why what's important is to [22:17] identify support levels. If you look at [22:20] a chart of Google here, you can notice [22:22] I've identified these are the [22:24] um [22:26] these are the uh technical support [22:28] levels and recently you can see the [22:31] price [22:32] you know wave up wave down wave up wave [22:35] down wave up wave down wave up wave down [22:38] wave up wave down wave up wave down. So [22:41] it's currently approaching this support [22:43] level over here. [22:44] 274 is a strong support. So if it hits [22:48] here, this could be a level to add [22:50] shares because a support level basically [22:53] means that historically [22:55] uh there has been more demand and supply [22:59] to reverse the price up at this support [23:01] level. So it could bounce back up here, [23:03] but if it breaks this support then of [23:05] course you have another very strong [23:06] support at 243. Okay? And that's why [23:10] when I add shares I never go all in at [23:12] one level because you can never pick the [23:13] absolute bottom, but I add in tranches. [23:17] I add slowly in tranches over time I [23:19] dollar cost average in until I've got a [23:21] full position and then I don't add [23:23] anymore. Let's very quickly look at the [23:25] other two stocks. They're the two [23:26] hyperscalers, right? So Meta. So Meta [23:28] dropped as well, dropped 12%but it since [23:30] rebounded but it's down 7%from earnings. [23:33] Again, what's the fear? [23:35] Uh again, besides the negative free cash [23:37] flow which I've addressed the other fear [23:39] is that operating income fell 37%and [23:42] they missed their earnings per share [23:44] guidance if you will, right? But why? [23:47] Why did it happen? Okay, it's because of [23:50] the uh [23:52] lawsuit settlement. They were sued for [23:54] the uh teen mental health [23:57] uh addiction trial if you guys recall [24:00] and they were supposed to be fined like [24:01] a billion dollars, but in the end they [24:03] paid a small amount small slap on the [24:06] wrist of uh about 9.89 billion charge. [24:10] So if you take that away, then the [24:13] operating income actually went up 11%. [24:16] So again, is this cyclical or is it [24:18] structural? It's cyclical. It's a [24:20] one-off thing that will not recur. [24:22] Okay? The other concern is that Meta is [24:25] raising money by selling shares. So [24:28] people think"Oh my god, this is going to [24:30] dilute my shares."So, they panic and [24:32] they sell. Okay? [24:34] Now, why are they raising money? Again, [24:36] to finance their capex growth. So, [24:39] they're financing it using debt and some [24:43] equity. So, how much are they raising? [24:45] They are raising 37.5 billion in equity. [24:49] So, when a company sells shares to raise [24:52] money, does it dilute the shareholders? [24:55] It does. But, the question is how much [24:57] does it dilute it by? And number two, in [25:00] the long run, will this capital grow the [25:03] pie even more? The answer is I think it [25:06] will grow the pie even more. So, I'm not [25:08] too concerned. But, the actual dilution, [25:10] if you do the mathematics, is a 2.4% [25:13] share dilution of current shareholders. [25:17] So, logically, the share price should [25:19] drop 2.4%, right? [25:22] But, it dropped 12%. All right, so the [25:23] market tends to overreact to bad news. [25:27] And so, if you take advantage of the [25:29] overreaction, that's how you get good [25:31] deals in the market, all right? [25:34] If you look at the underlying business, [25:35] you can see it's doing very well, just [25:37] like Alphabet. Revenue up 26%, third [25:40] straight quarter [25:42] uh above 25%ad revenue growth 25%and [25:46] they are guiding their quarter four [25:48] revenue at 73 to 76 billion dollars. Ad [25:52] impressions grew 10%, price per ad grew [25:54] 14%, which is a [25:56] sign of very strong pricing power and a [25:59] very strong economic moat. And the daily [26:02] active people, which means 3.64 billion [26:05] people [26:06] use Facebook, Instagram, or WhatsApp [26:09] daily, up 3%. So, again, is it a dying [26:14] business? Is it a declining business? [26:17] You make your decision. To me, it's a [26:19] business that's getting stronger and [26:21] more and more dominant, especially now [26:23] that they've launched their recent news [26:25] AI agent that has become very, very [26:27] popular. The number one downloaded app [26:29] in the US and now just came to Singapore [26:32] and playing with it now. So again, you [26:34] can calculate the intrinsic value by [26:36] doing the same thing I showed you [26:37] earlier on [26:39] uh calculating the normalized free cash [26:41] flow, taking the current cash from [26:43] operations minus the five-year average [26:45] cap backs. That should give you a [26:47] normalized free cash flow of of $79 [26:49] billion. So if you put [26:51] So if you put in $79 billion [26:53] into the intrinsic value calculator and [26:54] you project it at the [26:57] uh growth rates, [26:58] you get roughly about $1,000 to about [27:02] $1,200 intrinsic value. [27:06] That's right. But you can see that the [27:07] Oracle value actually is more [27:09] conservative and shows a valuation of [27:12] $900. So this is actually very very [27:15] conservative, using a much lower growth [27:18] rate than what people are using. And [27:20] even at the very conservative valuation, [27:23] uh Google I'm sorry, not Google, Meta is [27:25] 31%undervalued. Again, like I said, does [27:29] it mean that uh Meta will shoot to $900 [27:33] and $1,000 tomorrow? Of course not, [27:35] right? Short term, it can still go [27:36] lower. You can never predict the short [27:38] term, but long run, you know it's going [27:40] to keep growing and growing and growing [27:41] and it's worth at least 900 [27:44] to a thousand plus dollars, right? And [27:46] if you look at the chart again, you can [27:48] see [27:50] it's been chopping around over here. [27:52] Very strong support at the 150 green [27:55] line, 150 on the weekly time frame. [27:58] Right? As you can see, uh wave up, [28:00] bounce, bounce, bounce. It looks like it [28:03] could be bouncing here, but if not, it [28:04] could bounce here and then likely it's [28:06] going to go back higher by the end of [28:08] the year. I can't predict 100%, but [28:11] that's just my guess. Finally, let's [28:13] take a look at Amazon. Again, besides [28:15] the negative free cash flow, which I've [28:17] explained earlier on, the other two [28:20] fears people have about Amazon that [28:22] caused a sell-off was that their [28:24] earnings per share fell year on year and [28:27] their revenue missed expectations and [28:29] their ad revenue slowed to 12%. So [28:32] again, what actually happened? Is it a [28:34] cyclical issue or a structural long-term [28:37] issue that is affecting the business [28:40] economic mode? First, the reason the [28:42] earnings per share fell uh [28:45] from last year to this year is because [28:46] last year, 2025 quarter three, the [28:49] profit was unusually, artificially [28:53] propped up by a 9%Sorry, a $9 billion [28:57] gain on Amazon's stake in Anthropic, [28:59] which you know owns Claude, which is [29:01] going IPO this year. So, last year, [29:03] there was a one-time gain of $9 billion. [29:06] This year, there's no gain, so it caused [29:08] that drop. [29:09] Again, if you take that out of the [29:11] equation, this year, Amazon's operating [29:14] income is actually up 61%. So, it was [29:17] distorted because of their stake in [29:19] Anthropic. So, again, it's a one-time [29:22] issue that is not nothing to do with the [29:25] actual business of Amazon, okay? Second, [29:28] why did their revenue miss expectations? [29:30] Because their Prime Day, which they sell [29:32] the most, [29:33] uh moved from quarter three this year [29:36] uh to quarter two. [29:38] And if you don't include the shift, [29:40] their growth would have been 4%higher, [29:42] in fact. And there was also an FX cost [29:46] of $0.9 billion because of the stronger [29:48] US dollar in the last 3 months. So, [29:51] again, is it a cyclical issue? Yes, it's [29:53] a timing issue, and their forward [29:54] guidance already shows a strong rebound [29:57] in revenue and earnings per share. [30:00] Uh if you look at the underlying [30:01] business metrics, their Amazon Web [30:04] Services grew 39%, the fastest in 5 [30:08] years. [30:09] And management is guiding over 40% [30:12] growth in 2027 and 2028. The backlog is [30:15] growing, their operating income up 61%, [30:19] operating margin 13.9%, the highest in [30:22] Amazon's history. And for quarter four, [30:24] they're guiding sales growth of 12 to [30:26] 16%and operating income of 28.5 to 33.5 [30:31] billion, which is much higher than what [30:33] was expected. So, again, to me, this is [30:35] not a declining business. It's in fact a [30:37] business that that's getting even more [30:39] profitable and even more dominant. Now, [30:42] if you calculate Amazon's intrinsic [30:44] value, and again, I've shown you how to [30:45] do it, uh it is about $233 intrinsic [30:50] value. There we are. Oracle value 233, [30:52] exactly uh over here, as you can see. [30:56] So, um it announced yesterday. So, the [31:00] market is pricing in a 6.8%drop today. [31:05] Uh whether it will drop, I don't know. [31:07] But, if it drops to 226, [31:10] uh that will be at the first support [31:12] level. You can see there's a pretty [31:13] strong support level 226, and that would [31:15] make it slightly undervalued. All right? [31:17] You can see again, [31:18] um you know, wave up, wave down, wave [31:20] up, wave down, wave up, wave down. These [31:23] are small waves, and wave up, big wave [31:25] down, wave up, wave down, wave up, wave [31:27] down, wave up, big wave down, wave up, [31:28] wave down. You can see these waves are [31:30] very, very [31:32] uh predictable, right? So, wave up, wave [31:33] down. So, if you ask me to guess, it [31:37] would probably uh wave down to the first [31:40] support level and bounce all the way [31:42] back up. Again, you know, I can't 100% [31:45] predict, but I'm just guessing that this [31:47] would be a pretty strong support before [31:49] the year-end rally. Remember, we are [31:51] currently in phase one of the AI [31:54] revolution. We're going to We are going [31:57] to go into phase two next year, and [32:00] subsequently phase three. I'll talk a [32:02] lot more about this during the Black [32:04] Market X event coming up in November. [32:07] But, to give you a bit of an idea what [32:10] I'll be talking about, of the many [32:12] things I'll talk about, is in phase one, [32:14] the enablers are the ones that are going [32:18] to have the highest profit. So, enablers [32:20] are like your AMD, your Nvidia. Uh in [32:23] other words, your semiconductors and AI [32:25] power producers. They will capture most [32:27] of the profits. But, in phase one, it is [32:30] the hyperscalers that are spending on [32:32] CapEx. They will be squeezed by lower [32:35] free cash flow, squeezed by [32:37] depreciation. But, in phase two, [32:40] once the capex growth decelerates, which [32:44] means the hyperscalers spend less on [32:45] capex, you will see that the [32:47] semiconductors [32:49] and the AI power producers, they may [32:52] decelerate from there, but then the [32:55] hyperscaler cloud and AI revenue will [32:57] compound on a bigger install base. [33:00] And then finally in phase three, which [33:02] is 2029 beyond, you find that the [33:05] companies in health care, consumer [33:07] discretionary and industrials, which are [33:10] called the adopters, will have the [33:11] highest margin expansion. So, it's all [33:14] about knowing how to position your [33:15] portfolio to capture the highest value [33:18] in all three phases. I'll go into [33:21] greater detail in the upcoming live [33:24] Black Market X webinars in November, and [33:28] I look forward to seeing you there. [33:29] We'll give you more details in a while [33:30] how you can enroll in these live [33:33] webinars called Black Market X. So, with [33:35] that, thank you for listening to this [33:37] pretty long webinar. I hope it's been [33:39] useful, and as always, may the markets [33:41] be with you. And let's get ready for the [33:43] year-end rally. If you want to catch my [33:45] latest videos, click on the subscribe [33:47] button right now. Click on the bell, so [33:49] you get instant notifications once I [33:51] upload my latest video. If you want to [33:53] check out my online courses, go to [33:56] piranaprofits.com, where you're going to [33:58] learn how to invest and how to trade the [34:00] financial markets and create an income [34:02] from all around the world. [34:04] If you want to join my live Wealth [34:06] Academy program, go on to [34:08] wealthacademylive.com and find out more [34:10] about how you can learn investing and [34:12] trading live online. This is Adam Khoo, [34:14] and may the markets be with you.