Kuppy
Founder & CIO of Praetorian Capital, Author of Kuppy’s Korner
Alphabet now looks like a shale company that cannot stop spending on negative-ROIC investments, the habit that left shale drillers trading at 3x EBITDA. Per @TheStalwart, Alphabet is raising $80 billion of equity, including $10 billion from Berkshire Hathaway in a private placement, to expand its AI infrastructure, much as shale firms funded negative-ROIC wells with any capital available. This AI mania may go on longer. x.com x.com
Alphabet's AI capex payback is being repriced, making its post-earnings decline more than a one-day mood swing. Guidance and cloud and AI margin commentary are the near-term tests. If growth continues but the multiple compresses, the risk is duration in mega-cap AI, not a collapse in technology growth. x.com
Alphabet's surging AI capex is outpacing its payoff. Its first double earnings miss in four years came with free cash flow of -$9.1 billion versus -$2.7 billion expected, long-term debt up 479% in a year to $125.1 billion, and guidance for significantly higher 2027 capex above $300 billion. x.com x.com
Alphabet's businesses beyond search are why it will lead the real AI boom. Google Cloud, DeepMind and Waymo broaden its reach, and its $900 million SpaceX investment is now worth $85 billion. Fear emerging as the shares fall is an opportunity; a decline toward the buy zone is welcome, even as Q3 capex has taken a large hit out of free cash flow. x.com x.com x.com x.com
Increasing AI spending looks set to weigh on Alphabet shares. Cash-flow burn is the key reason to expect a post-earnings decline. x.com x.com
Alphabet's rapid cloud growth and diverse profit sources make it a long-term buy below 20x forward earnings. Cloud grew 103% this quarter, despite short-term fears about search and heavy spending. x.com
Alphabet's earnings growth makes its valuation look attractive. It trades at 21x forward earnings and a 0.47 PEG while EPS grows 34% year over year; shares are down almost 9% year to date. Search still grows 12% and Cloud grows 103%, undercutting the concern that Search will sink the business. x.com x.com
Alphabet's shrinking and negative free cash flow from excessive AI capex, which has yet to show a significant return, is driving investors away. The stock fell 7% on earnings and gapped below its 200-day and 40-week moving averages, which would be its first close below both since the tariff tantrum. x.com
The race to win AI is keeping Alphabet on a reckless spending path despite the damage to its share price. The expectation that spending would moderate has been wrong for a year; winning still takes precedence over the financial consequences, and a course correction has yet to arrive. x.com
Alphabet is still not expensive for its growth, and a dominant grower can be less risky than a familiar slow one. Staples like Coca-Cola, Clorox and Procter & Gamble trade at premium forward multiples despite going nowhere, while a slow company at 28x can be far riskier than a dominant grower at 22x. The market pays for mispriced future cash flows, not familiarity. x.com
Jan Zuazo Pfingsten
Thematic Investor, Physical Scarcity & AI Infrastructure, Primary-Source Research
AI infrastructure suppliers still have healthy demand despite tense financing. Q4's spending pace contradicts the reading that flat capex means a slowdown, while Cloud growth is 103%. Alphabet's negative free cash flow and share issuance are what punish its stock; a supplier selloff tomorrow would be an opportunity, not an exit signal. x.com
