The Few Bets That Matter
Concentrated Equity Investor, AI Infrastructure
Alphabet's earnings weakened the investment case because it missed on YouTube, Search, services, subscriptions and earnings, while reporting $0 in buybacks and double the negative free cash flow of last quarter. Cloud revenue was impressive, but Alphabet is a hold here and needs to come down significantly before adding. x.comÂ
Alphabet's fast-growing Cloud business could offset pressure on Search as AI agents bypass ads and links. Cloud is already half Search's size, grew 103% versus Search's 12%, and is on track to overtake it; that makes the sell-off a great opportunity. Alphabet also owns SpaceX shares worth about $80 billion. x.comÂ
Google Cloud's surging revenue and improving profitability make dumping Alphabet stock look perverse. Q3 revenue rose from $15.16 billion to $30.71 billion year over year, while operating income climbed from $3.59 billion to $11.12 billion and margin rose from 23.7% to 36.2%. x.comÂ
Alphabet's 103% year-over-year cloud growth makes its roughly 10% overnight stock drop hard to understand. That growth matters more here than what the rest of the company is doing. x.comÂ
Alphabet's search monopoly faces a different competitive game as agent companies build their own search tools. Google Cloud grew 103%, but that was not enough to offset disappointing ads growth. Its only path is to accelerate AI training and keep spending on capex. Search will never be the same, and the risk-reward has changed, though Alphabet remains an optimistic prospect. x.com x.com x.comÂ
Alphabet's business is bigger and more profitable across the board, while its stock is back at its March war-scare low. That makes it hard not to pour all future earnings into the stock. Quarterly revenue rose from $110B to $128B; Google Cloud growth accelerated from 63% to 103%, with $30.7B in quarterly revenue, an operating margin around 36% and profit more than tripling in a year. Search queries are growing at their fastest pace in five years. x.comÂ
Alphabet remains fundamentally strong because revenue rose 25%, Cloud grew 103% to $30.7B with record margins, and search queries reached a five-year high. Ads grew 12% instead of 17% expected, while 2027 capex rises again, so the market is repricing it from a cash-printing ad company into an AI spender. x.comÂ
AI answers cost Alphabet more to serve than traditional search results, adding a bigger bill to the risk of fewer ad clicks. Higher prices per click could offset some lost clicks, but growing capex has pushed free cash flow negative; the 2027 spending concern is not going away. x.com x.com x.com x.com x.com x.comÂ
Alphabet's exceptional revenue growth and expanding margins make a discount attractive if the market offers one. Quarterly revenue reached $125 billion, up 25%; search is growing faster than YouTube ads. The disappointing result reflects a mark-to-market on SpaceX, while the earnings call sounded great. x.com x.com x.com x.comÂ
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.comÂ