Elite business, deepest point of the investment cycle, and why I'm not selling puts before the print
Alphabet is two stories in one quarter. The operating business is excellent, and the cash story is the weakest it has been in a while.
Q2 revenue was $119.8B, up 24%, with a 34% operating margin. Google Cloud grew 82% at a 35.6% margin, with $514B of contracted backlog, about five years of current revenue. Search grew 17%, so the AI-disruption bear case isn't in the numbers.
The reported profit overstates it. Q2 GAAP EPS was $9.11, but $6.26 of that came from unrealised equity gains. On clean consensus EPS, Alphabet trades at 29.9× 2026 and 23.2× 2027, not the 17.7× on the screen.
Cash is where the investment shows. Free cash flow was −$5.9B in Q2, against $24.5B in Q3 2025. Trailing twelve months is still $53.3B, but capex guidance is $195–205B for 2026, and management says 2027 will "increase significantly". Buybacks are $0 for the first half, against $28.3B a year earlier. Alphabet raised $49.6B of new equity in June, and long-term debt has doubled to $98.2B. On Q3 night I'll watch free cash flow and capex guidance, not EPS.
Legal risk has changed shape. On 2 Sep the court refused to force a sale of AdX. What remains is conduct limits, a monitor, and a possible search-payment ban on appeal. That's serious for margins but not existential.
My scorecard gives it 69/100, level with Amazon.
My sell-put gates at $353.78 (13 Oct close):
200-day SMA ($340.42): pass, spot is 3.9% above.
Zone: amber, because the 50-day ($345.79) is about to roll over.
IVR 64.6, IVP 74.2: pass. The print inflates both.
Earnings: fail. Q3 is expected 27–28 Oct, so the 20 Nov monthly spans it.
Legal news: I also keep a conservative fail, since DOJ filings in the ad-tech case fall inside my 30-day window.
Sizing: a 10%-OTM strike (~$315) ties up $31,500, above my Amber cap, so it's a flagged exception at best.
The window for the 18 Dec monthly is 3–18 Nov, with a strike zone of $305–315. At 30% IV the $315 put has a delta of 0.11, below my 0.15 floor. At 35% it's 0.15, right at the floor. It only works if volatility holds up after the print.
So it's no trade today. I'll re-run every gate on 3 Nov.
Personal framework, not investment advice.
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- snoozi·10-14TOPGAAP EPS is flattered here, that $6.26 unrealized gain muddies the quarter. I care more about the core operating margin holding up once that accounting noise is stripped outLikeReport