Opinions
Reza Samahin, P. Eng, CFA
Alphabet Inc
GOOG-Q
HOLD
Mar 20, 2025
Stock price when the opinion was issued
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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 don't 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.
Premium contentGoogle's revenue for the last quarter was $96.4 billion. This represents a 6.86% increase compared to the previous quarter, which demonstrates a positive short-term growth. Year-over-year, this is a hike of 13.79%, suggesting solid long-term growth. Social media mentions are up 87.2% in the past 24h.
Some regulatory risks have now lifted. Still a decent valuation of 23x forward PE, discount to mega-cap peers. Continues to dominate digital ad space. Applying generative AI across the board. Cloud's a bit behind MSFT and AWS, but the entire space is growing so revenues are too. $100B in cash reserves gives lots of options.
Likes the acquisition of Wiz, the leader in cloud security. There are synergies between the two. Not clear whether Wiz now favours GOOG, or is still cloud-agnostic. Overall, more benefits than negatives.
Well positioned for the long term. GOOG invented a lot of the fundamental building blocks of AI, yet they get no credit for all that technology. The reason is that they're not good at creating commercial products. Outside of Search, all of their successful products are through acquisition -- YouTube, Android, Google Maps. So the market's wondering if it can make the transition to a generative AI future.
This helps explain why the multiple's where it's at. They could turn all this around and it would be an opportunity, but it'll probably take a change in leadership. Take a look at the history of MSFT since 2012.