Terminal Alpha · Valuation study · 23 July 2026

Google vs Amazon: what are they really worth?

Both companies' reported earnings mislead — Google's are inflated by a reversible $99B accounting gain; Amazon's are hidden by enormous depreciation. This strips the noise with owner earnings to ask the only question that matters: how much cash could an owner actually take out?

The bottom line

Neither is cheap. Both trade at a ~2–3.5% "owner-earnings yield" — the whole price is a bet that their massive AI spending earns a return. Google is the higher-confidence business with the messier headline; Amazon is optically cheaper but only under some assumptions, and its earnings quality is not as clean as it first looks.

1Why the headline numbers lie

Google just reported a 294% jump in profit. Almost none of it was real.

Alphabet's Q2-2026 earnings per share came in at $9.11, up 294%. Strip out one item and the real number is about $2.61. The difference is a $99 billion gain on investments — and 99% of it is unrealized (an accounting mark-up, no cash changed hands):

Alphabet Q2-2026 equity-securities gain (from the 10-Q), $ billions
Mark-up on a private company (a funding round re-priced Google's stake)$77.4
Mark-up on public/other stakes (includes a SpaceX position)$21.4
Actually sold for cash$0.3
Total$99.0

It's 71% of pre-tax income, and it's reversible — a market drop or a down-round unwinds it (exactly what happened to Amazon's Rivian stake in 2022, which pushed Amazon to a net loss). So the headline P/E of ~16 is a mirage. Clean it up and Google trades near ~31–32× earnings.

2Google, cleaned up — not cheap

The −6.5% drop made it less expensive. It did not make it cheap.

Alphabet valuation, before vs after the print
MetricReportedClean / real
Trailing P/E16× (mirage)~31–32×
Forward P/E (2026)~22×
Its own 5-year P/E range19–29×now at / above the top

On genuinely clean earnings, Google sits at or above the top of its own 5-year valuation range. It is a fully-to-richly valued, high-quality business — not a bargain hiding behind a low headline P/E.

3The tools — plain definitions

Four terms do all the work in this study. Here they are in plain English.

Owner earnings — Warren Buffett's measure of the cash an owner can actually take out of a business each year: reported profit + depreciation the capital spending needed just to maintain the business (not to grow it). It cuts through both accounting games and one-time gains. It is the backbone of this study.
Stock-based compensation (SBC) — paying employees in shares and options instead of cash. It is a real cost — it dilutes existing owners, just like printing new shares — even though no cash leaves the company. Because it's non-cash, some analysts wrongly add it back (treating it like depreciation) to flatter the numbers. We don't. We treat SBC as the real expense it is. It's large for both: Google $25.0B, Amazon $19.5B in 2025. How strictly you charge for it is the single biggest swing in the comparison below.
EV/EBITDA — enterprise value ÷ earnings before interest, taxes, depreciation and amortization. It adds depreciation back, which helps compare two companies with very different depreciation loads — but it flatters heavy spenders, because depreciation is a real cost of replacing worn-out equipment. A useful cross-check, not the final word.
Equity-securities mark — the gain or loss from re-valuing the company's investment stakes in other companies each quarter (required by accounting rules since 2018). It flows through reported profit but is non-cash and reversible. This is what inflated Google's Q2 (§1).

4Why Amazon's P/E looks higher (it's an illusion)

Amazon's higher P/E doesn't mean the market values it more. It's a depreciation artifact.

Amazon carries about 3× the depreciation of Google ($66B vs $21B) on a much lower-margin base. Depreciation crushes reported profit (the bottom of the P/E) but not cash. So Amazon's P/E looks high — but on EV/EBITDA, which adds depreciation back, the premium reverses:

GOOGLAMZN
P/E (headline)16× (mirage)29×
EV/EBITDA~25×~18×
Operating margin~32%~11%
Depreciation (2025)$21B$66B
Stock last 12 months+66%+3%
Own 5-year P/E rangeat the HIGHnear the LOW

Caveat: EV/EBITDA flatters Amazon — that depreciation is real money spent replacing servers and warehouses. It's a directional equalizer, not proof Amazon is cheaper. The owner-earnings test (§5) settles it.

5The real test — owner earnings

What can an owner actually pull out? And how much do the AI-spending assumptions matter?

Owner earnings, 2025 ($ billions)
ConventionGOOGLAMZN
Standard (SBC already counted)~$85–100~$78
Strict (extra charge for SBC dilution)~$87~$58
Owner-earnings yield — standard~2.4–3.0%~2.9–3.0%
Owner-earnings yield — strict (SBC)~2.3%~2.2%
The finding that decides "is Amazon cheaper?"

On the standard convention, Amazon yields a bit more — cheaper. But charge properly for stock-based comp (the strict view) and the two converge to ~2.2–2.3% — Amazon's edge disappears. So "Amazon is cheaper" is convention-dependent, not robust. Either way, both are low-single-digit yields — neither is cheap.

Why free cash flow misleads for both — and badly for Amazon

Free cash flow subtracts all capital spending as if every dollar were just replacement. That's false while these businesses are building AI capacity. Google's owner earnings (~$90B) are ~1.2× its FCF ($73B). Amazon's owner earnings (~$78B) are ~7× its reported FCF ($11.2B) — its cash is being consumed by growth spending. Valuing Amazon off its FCF is a category error.

6What we understand — and what we don't

Accurate valuation means knowing which numbers to trust. Here's the honest map.

✅ Understood / reliable

  • Segment operating income (AWS, Cloud, Search, ads, retail)
  • Operating margins & revenue
  • Depreciation, capex totals, stock-based comp
  • The equity-mark distortion — now decomposed

⚠️ Opaque / unknowable from outside

  • Maintenance vs growth capex split — swings owner earnings ~$30B each
  • Return on the AI capex — will $130–200B/yr earn its cost of capital?
  • Depreciation-life assumptions (both adjust them)
  • Google: terminal value of Search under AI
  • Amazon: true normalized retail margin
Earnings quality — a nuance the first draft got wrong

Google's profit is quietly propped up by a 2023 accounting change that lengthened server lives (+$3.0B net income, still in force) — and a depreciation "catch-up" is coming that will pressure margins in 2027–29. Amazon is mixed, not pristine: it shortened some server lives (conservative) but also lengthened heavy-equipment lives (a flatter). Net, Amazon's accounting is modestly cleaner than Google's — not the one-sided win it first appeared.

7Conclusion

On the original question — is it a good moment to buy Google (or its LEAPs)?

This study argues against "historically a good moment to buy." On clean numbers Google is fully-to-richly valued, so a long-dated call option is leverage on a growth bet with no valuation cushion — not a discount. If you want a hyperscaler on owner economics: Google for confidence, Amazon for cleaner accounting and more torque — but neither is a bargain, and Amazon's apparent cheapness depends on how you treat stock comp.

Internal research — not investment advice. Built with AI assistance from SEC filings and market data, then independently red-teamed against the primary filings (which verified the $99B decomposition, the operating figures, and the depreciation facts, and corrected the free-cash-flow definition, the stock-comp treatment, and several figures before publishing). Automated analysis can still contain mistakes or stale data — verify against primary sources before acting. The operator makes all decisions by hand. Private page (noindex).