Alphabet Swaps Buybacks for Data Centers. Wall Street Is Getting Nervous — Barrons.com

What happened

Alphabet reports third-quarter earnings on Wednesday, with attention on Google Cloud. Analysts expect cloud revenue to grow 90% to $29 billion and segment operating income near $10 billion.

Confirmed

Global impact / market context

Shifting money from buybacks, which return cash to shareholders, toward data centers means investors wait longer for returns. Higher spending can pressure free cash flow and profit per sale as depreciation, the accounting cost of equipment wearing out, rises.

Analyst inference

Alphabet's search advertising is growing at its best pace since 2021, and YouTube ad revenue is expected to rise 12% this year. Cloud is now the fastest-growing major platform, so spending plans are central to how investors value the stock.

Analyst inference

What to watch

1. Analysts project third-quarter cloud revenue growth of 90% to $29 billion, and segment operating income near $10 billion, up 171% from last year. Confirmed
2. Watch whether Alphabet gives more detail on how it will fund further growth, including any change to buybacks that return cash to shareholders. Proposed
3. Rising depreciation from data centers could lift costs and reduce profit per sale, so watch Google Cloud's operating margin and overall sales growth against the 25% consensus to $128 billion. Analyst inference

Evidence

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