Opinions
Chris Blumas
Alphabet Inc
GOOG-Q
BUY ON WEAKNESS
Apr 18, 2024
Stock price when the opinion was issued
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Always a concern when you're being sued by the US government. Have to see what evolves, GOOG has already said it will appeal, will play out over a number of years. Headline risk is an overhang. Capex for data centres will increase by 40-50%, a surprise to the street.
Cloud grew 30% YOY, healthy, but expectations were for 32% or so. Stock came off. And now the market selloff, which is focused on large-cap tech. Trading at 17x forward PE. Consensus that EPS can grow in the 14-15% range. If earnings can hold, the multiple is very attractive (actually less than the S&P). Reports this week. She'd buy here with new money.
The Mag 7 name he likes going into the second half of the year. Search is still extremely popular even though everyone was worried about AI. At the front of the line when it come to innovation in AI. So many other horses in the race. 75-80% of revenues come from ads; so a recession would definitely hurt, but that seems to be off the table for now as the S&P 500 "death cross" has recovered for now.
Might be affected on today's news that AAPL will be adding some AI-search capabilities to its browsers. Still likes it. Down 27% from highs earlier this year. Still above 200-week MA, which is moving higher. Winner long term. Trades at 18x forward PE for 13-14% EPS growth. Embedding AI solutions across its ecosystem. Still the leader in digital advertising, cloud continues to grow. There will be choppiness against expectations.
While there will be continued competition in AI, this name has so many engines for growth. Not going anywhere.
This is huge news. Search is their cash cow, their primary business. The concern over recent years is that Google is not moving fast enough to fend off competition. Maybe the best outcome is that Alphabet split into businesses. They will have to innovate and evolve to replace that search cash cow, and he thinks they can do it.
He sold it recently. This news is very significant. Google won't disappear--they have a steady business--but the duopoly Google shares with Meta in internet ads is in question. This is a watershed moment. For the first time, Google is competing in core search, particular AI which are growing better and complex, yet easier to use and attracting a younger user. Also, Google faces a problem in travel search declining from less traveling and tariffs. It's been said that travel search accounts for 13% of Google searches.
Very positive outlook, based on generative AI trend. The most controversial of the Mag 7, as AAPL reported yesterday that search queries are down for the first time ever. That struck a negative tone on GOOG. Over time there may be more competitors, and pricing may have to come down. Trades at only 15x earnings, good value here at $150-155.
Broad market driver now is AI. To benefit from, and optimize, AI, you need data. Only the Mag 7 have massive data. Play on digital advertising. A bit more essential than META. Both have a fairly reasonable valuation, though META is a bit more of a value play right now. Above his buy price right now, wait for pullback.