I’m happy to see my recent 10-Q analyses have been so well-received. You’re welcome to use my method to analyze companies you’re interested in. I just strongly recommend you always use primary sources.
Alternatively, you can follow me. I’ll handle the basic work, and you can Learn from my reads. It will save you lots of time and energy. Haha.
Today, I’m sharing my 10-Q analysis for GOOGLE.
Alphabet’s Q3 2025 was a story of massive AI-driven growth, delivering its first-ever $100 billion quarter with revenue hitting $102.3 billion (up 16% Y/Y). This was fueled by double-digit growth in Search and YouTube, and a 34% acceleration in Google Cloud, which now boasts a $155 billion backlog as its AI products generate ‘billions in quarterly revenue.’ This growth is being funded by an aggressive investment blitz, with 2025 CapEx guidance raised to over $91 billion and a warning of another ‘significant increase’ in 2026. However, the quarter was also marked by a $3.5 billion EC fine and significant setbacks in U.S. antitrust cases, which are beginning to force changes to its core business models.
1. Income Statement : “Show Me the Money”
Alphabet delivered its first-ever $100 billion quarter, with revenue hitting $102.3 billion. This represents 16% year-over-year (Y/Y) growth. The growth was broad-based, with double-digit increases in every major segment.
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Operating Income: $31.2 billion, up 9% Y/Y.
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Operating Margin: 30.5%, a compression from 32.3% last year. The Catch: This margin includes a $3.5 billion charge for a new European Commission (EC) fine. Excluding this one-time legal accrual, operating income would have been $34.7 billion, up 22% Y/Y, and the operating margin would have been 33.9%.
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Net Income: $35.0 billion (+33% Y/Y).
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Diluted EPS: $2.87 (+35% Y/Y).
Key Drivers: The Segments
The real story is the strength across the board. The narrative that AI might cannibalize the core business is not appearing in the numbers; instead, it appears to be an accelerant.
2. Balance Sheet : “Strength or Stress?”
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Cash & Securities: $98.5 billion. This is down from $95.7 billion at the start of the year, but this is after spending massively on CapEx and buybacks.
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Debt: $21.6 billion in long-term debt. This is up from $10.9 billion at year-end 2024, reflecting new note issuances in May 2025. This debt level is negligible for a company with Alphabet’s cash flow.
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Goodwill: $33.3 billion, up slightly from $31.9 billion at year-end, reflecting minor acquisitions.
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Share Repurchases: The company bought back $11.6 billion of stock in the quarter. There is $74.8 billion remaining on the buyback authorization.
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Pending Acquisition: The 10-Q notes the pending $32.0 billion all-cash acquisition of Wiz, expected to close in 2026. This will be a significant use of cash.
💡 My Read:
This balance sheet is a fortress. The company is a cash-generation machine and is using that cash to (1) fund the AI race, (2) make a massive acquisition in Cloud security (Wiz), and (3) aggressively return capital to shareholders.
3. Cash Flow ： “Follow the Cash”
This is where the story gets really interesting.
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Operating Cash Flow (OCF): A massive $48.4 billion for the quarter, up from $30.7 billion last year.
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Capital Expenditures (CapEx): An explosive $24.0 billion for the quarter. This is an 83% increase from the $13.1 billion spent in Q3 2024.
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Free Cash Flow (FCF): $24.5 billion, up from $17.6 billion last year, even with the enormous CapEx spike.
📌 Translation:
The numbers are staggering. Alphabet is in an all-out investment blitz to build its AI infrastructure. The MD&A section confirms that for the first nine months of 2025, CapEx was $63.6 billion, up from $38.3 billion in the prior year, with the increase “driven by investments in technical infrastructure, including servers, network equipment, and data centers… in particular in support of AI products and services”.
Management isn’t just spending; they are accelerating their spending.
4. MD&A ： “Management’s Voice”
The “Management’s Discussion and Analysis” (MD&A) section provides the official narrative for the numbers.
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On AI in Search: Management clearly states that its AI investments are paying off. Search revenue growth was driven by “growth in advertiser spending; and improvements we have made in ad formats and delivery”.
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On Cloud’s AI Boom: The 10-Q notes that “as of September 30, 2025, we had $157.7 billion of remaining performance obligations (‘revenue backlog’), primarily related to Google Cloud”. The earnings call transcript specified this backlog grew $49 billion sequentially and that Cloud has “signed more billion-dollar deals in the first nine months of 2025 than in the past two years combined”.
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On the Legal Hit: The MD&A confirms the $3.5 billion EC fine accrued in Q3 was the primary driver for the 105% Y/Y jump in General & Administrative (G&A) expenses.
5. Risk Factors & Legal ： “Read the Fine Print”
The 10-Q’s “Legal Proceedings” section is a must-read. The $3.5 billion fine is just the beginning.
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DOJ Search Case: Alphabet lost this case. The 10-Q states that in August 2024, the court “ruled against Google” and the September 2025 remedies decision “imposes restrictions on how Google distributes its services”. This is a direct hit on its core distribution model.
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DOJ AdTech Case: This is the big one. A “mixed decision” was issued, but the 10-Q warns: “The DOJ’s remedy proposal includes structural remedies that could have a material adverse effect on our business”. “Structural remedies” is code for a potential, court-ordered breakup of its AdTech stack.
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Epic Games (Google Play) Case: Alphabet lost this case, and its appeal was denied. The company is appealing to the U.S. Supreme Court, but in the meantime, it was forced to implement the “ordered remedies” (i.e., changes to its Play Store business model) in October 2025.
💡 My Read:
The legal overhang is not just a “cost of doing business.” It has progressed to active, court-ordered changes to core business practices (Search distribution, Google Play) with the “structural” threat to AdTech still pending.
6. Compare to Expectations (Outlook)
Management’s forward-looking commentary was the biggest news of the call.
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CapEx Guidance: Alphabet raised its full-year 2025 CapEx guidance to $91 billion – $93 billion. This is up from a previous estimate of $85 billion.
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2026 Warning: The spending won’t stop. CFO Anat Ashkenazi stated, “Looking out to 2026, we expect a significant increase in CapEx” on top of 2025’s massive numbers.
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Q4 Headwind: Management warned that Q4 advertising revenue will face a tough comparison “negatively impacted by the strong spend on U.S. elections in the fourth quarter of 2024”.
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Supply Constraint: They are spending as fast as they can and it’s still not enough. The company expects to “remain in a tight demand/supply environment in Q4 and 2026″.
7. Earnings Call Commentary ： “What They Said Out Loud”
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Sundar Pichai (CEO): On Search & AI: “Al Overviews drive meaningful query growth”. “Al Mode is already driving incremental total query growth for Search”. On AI Metrics: “Gemini App now has over 650 million monthly active users”. “processed over 1.3 quadrillion monthly tokens”.
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Philipp Schindler (CBO): The Key Quote on Monetization: Addressing the biggest investor fear, Schindler said that for AI Overviews, “even at our current baseline of ads… overall, we see the monetization at approximately the same rate“. On New Ad Products: “Al Max in Search… unlocked billions of net new queries” for advertisers.
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Anat Ashkenazi (CFO): On Cloud: “GCP’s growth was driven by enterprise Al products, which are generating billions in quarterly revenue“. On Cloud Backlog: It “increased 46% sequentially… reaching $155 billion“.
🎯 My Take
Alphabet is running on two tracks, and both are accelerating.
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The Numbers (The 10-Q): The financials are phenomenal. This $100B+ quarter demonstrates that AI is not a cannibalistic threat to the core Search business. Instead, it’s a growth accelerant that is increasing user queries and monetizing at similar rates, while simultaneously creating a new multi-billion dollar AI revenue stream in Cloud.
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The Narrative (The Call): The story is one of overwhelming demand. Management is signaling that the AI opportunity is so massive that they are in a “tight demand/supply environment” and must raise CapEx guidance to over $91 billion and warn of another “significant increase” in 2026.
The risks are clear and present. The $3.5B fine is a rounding error, but the legal losses are not. The company is now being forced to change its business practices by court order, with the threat of “structural remedies” (a breakup) to its AdTech business still on the table.
Final Verdict:
Alphabet is successfully converting its AI leadership into massive revenue growth across its two most important businesses. However, it is funding this growth with an unprecedented CapEx surge and is simultaneously fighting a multi-front legal war that has already resulted in significant losses.