Google Q3 Preview: If Cloud Revenue Doubles, But Free Cash Flow Remains Negative, How Will the Market Respond? Market expectations for this earnings report are already high. The consensus total revenue is approximately $127.9 billion (+25%), with the latest consensus forecast for cloud revenue at approximately $29.16 billion (+92%), search revenue at approximately 15%, and YouTube advertising at approximately 11%. Let's discuss the most anticipated aspects of Google's Q3 earnings report: 1. Cloud revenue is nearing doubling, but the quality of revenue growth will likely remain in the 95%-100% range. However, the external sales of TPU systems (delivered to customers' own data centers) recognized starting in Q2 will inflate the figures. The real focus will be on the growth rate of existing cloud services after excluding these figures, whether traditional enterprise consumption accelerates, and profit margins (expected at 33%-35%, slightly pressured by the integration of third-party computing power and Wiz). 2. The diversification of enterprise orders is crucial (this aligns with yesterday's discussion of Microsoft's earnings preview). Five-year partnerships with Ryanair and BNP Paribas demonstrate that non-model lab clients are starting to allocate their operating budgets to AI. Nearly 80% of cloud customers are already using AI products, and nearly 90% of Fortune 100 companies use Gemini Enterprise, but the next key factor is the depth of usage and continued payment. 3. Capital expenditure and free cash flow are the biggest focus. The 2026 Capex guidance is $195-205 billion, with approximately $80.6 billion already spent in the first half of the year, indicating significant pressure in the second half. Investment banks generally expect over $300 billion in free cash flow in 2027. FCF is likely negative (including approximately $5.2 billion in penalties from the Android case), requiring the separation of one-off items to assess continued cash generation capacity. Good spending includes early delivery, high utilization rates, and early customer payments; bad spending includes rising costs or continuously delayed payments. EPS and profit margins need to be analyzed by looking beyond primary factors. Last year, investment income and EU fines caused disruptions. This year, if there are equity investment gains or improved reported profit margins, the contribution from core business should be examined first. Total revenue exceeded expectations ($128.5-130.5 billion), with cloud growing at 95%-100% and search at 15%-17%, indicating a positive business trend. However, the market has already priced in strong cloud growth. What truly determines the stock price is the quality of growth (service consumption excluding system sales), the willingness of enterprises to continue paying, and whether Capex will spiral out of control in 2027 and whether the cash flow outlook can improve. Overall: 1) If next year's capital expenditures do not significantly exceed market assumptions and the cash flow outlook improves, this financial report will be well-supported. 2) Conversely, if growth is mainly driven by concentrated delivery, cloud profit margins and cash collection are weaker than expected, and management continues to significantly increase spending, I will lower my expectations for return on capital. See the full article on OKX Planet for details.