Revenue is growing 24% and margins are high, but capex has swallowed free cash flow and the stock already carries a high multiple. Our $362 target is about 3% above the price, so it should track the market.
Key points
- $44.9 billion quarterly capex in June 2026, against $39.1 billion operating cash flow: free cash flow was negative.
- 24% revenue growth in the June 2026 quarter, with a 34% operating margin.
- $362 target, 3% above $350.53: a hold.
The call
The price asks for growth to hold above 20% while spending pays off. At $350.53 the market values the company at about $4.25 trillion, roughly 35 times last year's operating profit after tax. That leaves little room for a slip.
We think the business is excellent but the price is fair. Search grew 17% and Cloud is capacity-limited. Yet 2026 capex is guided to $195 to $205 billion, and more in 2027. Depreciation will pressure margins.
Operating cash flow vs capex ($ billions)Source: SEC XBRL company facts via desk briefing, quarters to Jun 2026
Valuation
| Item | Figure |
|---|
| 2027 revenue estimate | $570 billion (about 41% growth is not assumed; roughly 18%) |
| Operating margin | 33% |
| Operating profit | $188 billion |
| Earnings per share (2027E) | $13.29 |
| Multiple | 26 times |
| Value plus investments per share ($16) | $362 |
We use 26 times because growth is strong but free cash flow is negative. Investment stakes such as SpaceX add about $16 a share. Upside is about 3% and downside from a capex-driven margin squeeze is larger, so we stay neutral.
Risks
- Depreciation outruns revenue: watch Cloud margin in the October 28 report.
- Regulation (ad tech remedies, EU orders, Play fees): watch rulings.
- Funding strain, with $811 billion of purchase commitments and new equity and debt: watch free cash flow and share count.
What would change my mind
Two quarters of positive free cash flow with Cloud growth above 40% would make me a buyer; falling Search growth would make me a seller.