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Deep Dive: Free Cash Flow Explained — Why It Matters More Than Earnings

Wall Street fixates on earnings per share. Analysts build models around net income. Headlines scream about earnings beats and misses. But the most sophisticated investors — from Warren Buffett to private equity titans — have long argued that a different number matters more: free cash flow. Free cash flow strips away the accounting abstractions that cloud net income and answers a deceptively simple question: how much actual cash did this business generate after keeping the lights on and the factories running? It is the money available to pay dividends, buy back shares, reduce debt, or fund acquisitions — the real fuel for shareholder returns. In 2025, Apple generated $98.8 billion in free cash flow while reporting $112 billion in net income. Microsoft produced $71.6 billion in FCF against $101.8 billion in earnings. The gaps are enormous, and understanding why they exist is essential to evaluating any stock. This guide breaks down what free cash flow is, how to calculate it, why it diverges from earnings, and how to use it to compare companies across industries — from asset-light payment networks like Visa to capital-hungry tech giants like Alphabet and Amazon.

free cash flowcash flow analysisFCF yield

GOOGL Analysis: Alphabet's $3.8 Trillion Rebound — Why the Post-Earnings Selloff Was a Gift for Patient Investors

Alphabet Inc. closed at $314.98 on Friday, up 4% on the session and reclaiming ground after a turbulent February that saw the stock punished following its Q4 2025 earnings report. Shares remain roughly 10% below the 52-week high of $349, despite Alphabet delivering what Seeking Alpha called "the best hyperscaler quarter" of the reporting season — with Google Cloud revenue surging 48% year-over-year and cloud operating margins expanding to 30.1%. The selloff was driven by a single number: Alphabet's guidance for $175–$185 billion in 2026 capital expenditure, dwarfing the $91.4 billion spent in 2025 and blowing past the $115 billion Wall Street consensus. Investors recoiled at the near-term free cash flow implications, sending shares down 7% on earnings day. But nine days later, the stock is recovering — and the fundamental picture suggests the market's initial reaction was overdone. With a trailing PE of 29.2x, a $3.81 trillion market cap, and full-year 2025 revenue of $402.9 billion (up 18% year-over-year), Alphabet remains one of the most profitable companies on Earth. The question investors face now is whether the AI capex surge is a value trap or a generational opportunity. The data points firmly toward the latter.

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MSFT Analysis: The Most Under-Owned Megacap — Why Microsoft's 28% Pullback From Highs May Be the AI Era's Best Risk-Reward Setup

Microsoft Corporation (NASDAQ: MSFT) trades at $401.65 as of February 18, 2026 — a striking 28% below its 52-week high of $555.45 and well under both its 50-day moving average of $460.94 and 200-day average of $487.38. For a company generating over $305 billion in trailing twelve-month revenue and posting consistent double-digit growth, the disconnect between fundamentals and price action is notable. Morgan Stanley recently called Microsoft "the most under-owned megacap" on Wall Street, a rare label for a company with a $2.98 trillion market capitalization. The pullback has been driven by a broader tech sector correction fueled by AI disruption fears and investor concerns about the staggering capital expenditure required to build out generative AI infrastructure. Microsoft pledged $50 billion for Global South AI expansion alone, on top of tens of billions already committed to Azure data centers. Yet the most recent quarter — fiscal Q2 2026 ending December 2025 — delivered $81.3 billion in revenue, a 16% year-over-year increase, with diluted EPS of $5.16 and operating margins expanding to 47.1%. These are not the numbers of a company in crisis. The central question for investors is whether Microsoft's massive AI capital cycle will generate returns commensurate with the investment, or whether rising depreciation and capex will structurally compress free cash flow. With the stock trading at 25x trailing earnings — its cheapest valuation in over two years — the market appears to be pricing in meaningful risk. This analysis examines whether that risk is adequately rewarded.

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