Opinions
Kim Bolton
Alphabet Inc
GOOG-Q
BUY
Apr 23, 2025
Stock price when the opinion was issued
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Doesn't own it, because there's a forecast of a 25% drop in 2026 in single search engine queries. In contrasts, Meta has 90% margins in their single search engine queries. Even if GOOG does well in AI and cloud, those are not as profitable as the main search business. Decent earnings growth ahead, but their earnings are more at risk. Instead of Google, she uses chatGPT and other methods to search.
The numbers reported this week were really good. YouTube pulled in $10B in ad revenue. Holds assets it hasn't even monetized yet. Search is at risk, and the multiple reflects that. He's watching all the AI plays to see how they monetize.
He'd pick this one, for at least a trade. Only one of the Mag 7 below the market multiple.
In his momentum mandate. Reported 2 days ago and beat on sales, earnings, and other key performance metrics. Earnings up ~22%, sales up 15%. Acceleration of cloud computing, now ~$50B a year and probably the fastest-growing part of the business. Stepping up capital spending on the AI arms race, yet also authorized to buy back $70B in stock. Very cash-generative.
Trying to get its head around monetizing AI in Search, and he thinks they will.
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)
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.