Opinions
Chris Blumas
Alphabet Inc
GOOG-Q
STRONG BUY
Aug 14, 2024
Stock price when the opinion was issued
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Premium contentHighlights from their July 23 report: sales of $96 billion, up 14%' operating margins of 32%, flat year over year; Google Cloud expanded revenues by 32% as AI-driven demand for cloud infrastructure remained solid; YouTube ad revenue rose 13% to $9.8 billion; and Google Search grew 12% year-over-year, up from 10% growth last quarter, despite the rise of chatGPT. Other metrics in its favour: 20.87x PE, lowest among the Mag 7 and far from the S&P's 25.9x, and a beta of 1.0, calm for a megatech company.
Not a lot of meaningful competition. Good earnings growth at 13-15%. Not expensive at 20x forward PE. AI and cloud momentum is key moving forward. Ad platform continues to be the monster out there. Will perform well as macro conditions and ad budgets improve. Strong cash position provides resilience during tough times and could lead to aggressive share repurchases, which helps with EPS.
The cloud services business started generating positive operating income, but the other ones are negative. There is so much underlying value in GOOG. The big risk is regulation, but if forced to break up, then parts of the business will sell off. GOOG generates tons of free cash flow, and are great in allocating capital. Offers big value.
(Analysts’ price target is $220.46)The cloud services business started generating positive operating income, but the other ones are negative. There is so much underlying value in GOOG. The big risk is regulation, but if forced to break up, then parts of the business will sell off. GOOG generates tons of free cash flow, and are great in allocating capital. Offers big value.
(Analysts’ price target is $220.46)You need to focus on the types of queries that go in. If he wants to learn about uranium and nuclear powering data centres, he'll do a deep dive on ChatGPT. But if he needs new shin pads or a hockey stick, he'll go on Google to find a vendor.
So the search volume is changing in intent, and Search queries in Google are becoming much more commercial. YouTube is an absolute beast.
Dumping a high-growth tech stock then planning to buy back at a lower price is a lot harder than you think. He sold GOOG after the Justice Dept. called GOOG a monopolist. Then, GOOG went up and the Justice Dept. did not break up GOOG. He didn't get back into the stock. In fact, GOOG is worth more if it is broken up into separate companies. He has tremendous remorse over selling it. Lesson: trading is the enemy of many investors.
Thinks it's going higher, but perhaps not buy now. Wait for pullback. There's always a reason for a stock to pull back at some point, but he can't predict the magnitude.
At this level, risk/reward is not as good as entering at a lower price. Trades ~20-21x forward PE, whereas NVDA is trading at 40x forward PE or more. Lots of upside potential in things we're not even talking about yet, such as quantum computing -- freebies that may not be baked into the valuation today.
Phenomenally undervalued. Sold off due to negative headlines on anti-trust. Whether it stays as one or gets broken up, massive amount of value. If it no longer pays fees for exclusive Search access on smartphones, but people still choose to use them, enhances profitability.
20x earnings, gushes cash, debt-free. He'd buy today.