r/stocks
Is the market underpricing GOOGL search again? First it was ai will kill search and now it’s token costs will eat margins
Author argues market wrongly fears GOOGL's AI CapEx, citing expanding margins, strong cloud growth, and successful ad monetization.
- AI Overviews improved search experience and increased search volume, debunking the 'AI kills search' narrative.
- Operating margins expanded to 36% despite heavy CapEx, proving successful ad monetization in AI paragraphs.
- Cloud division is growing rapidly at 63% with a massive $460B backlog to offset infrastructure costs.
- Market fears that massive token compute costs and CapEx bills will permanently destroy profit margins.
It feels like the market is repeating the exact same mistake with Google that it made last year.
Remember the massive narrative that AI chatbots were going to kill Google Search? The theory was that no one would google things anymore. We now know how that turned out. AI Overviews actually made people search more.
When I searched for how to make a favicon for website , it gave me a synthesized paragraph for all different services which is much better than just different blue links on a page. I am sure it mixed organic results with ads. Google has been so much better to find products with ai overviews in my opinion.
Now that the death of search narrative is dead, Wall Street has completely shifted the goalposts. The new bear case is all about margins. The narrative is now: sure, revenue is growing, but the massive token compute costs and their CapEx bill will permanently destroy their profit margins.
But is this just another massive miscalculation again?
If you look at their latest earnings, Alphabet's operating margins actually expanded to 36%. They are successfully relocating their ad revenue right into the AI paragraphs, and their Cloud division is growing at 63% with a $460 billion backlog to help offset the infrastructure costs.
Is the market underpricing their actual growth again by obsessing over the CapEx bill? Curious how everyone else is viewing the stock right now. We will find out soon in 6 weeks . I am expecting another blow out quarter
Alphabet will likely become the largest company in the world later this year.
I think Google is a top contender to be the top dawg but in the current landscape it’s hard to imagine anyone overtaking NVDA in the near term. They should continue to benefit from the gold rush for many years
Google is the complete package, it will be the world’s most valuable company.
The reason Google is my largest single stock position is that I don’t have to look into what they’re doing, because I trust they will continue to make a fuck ton of money
Bingo. Literally 60% of my portfolio.
Buy
Short answer: yes. Long answer: yessssssssssssss
Stocks is getting obliterated today when market is roaring green. Sad to see 😢
Patience. 6 more weeks for q2 earnings
Oh ye of little faith 😄
Yeah QQQ was up 3% and Google only 1%
Investors are still sore about 80billion more stocks getting printed.
1.6% dilution doesnt really justify this large of a drop
Give this potato a comedy award
I’ll be bones and say I don’t fully understand Google and never had yet I just trust it and fact Berkshire invested in an obvious overvalued market implies to me they must know something I’ll never figure out and might just be that OP speaks or something else. This one company the only one that seems to go against the grain and in why I think this bubble pops because otherwise why would the Buffet bros invest.
What's there not to understand about Google lol
You use it everyday
a lot of people despite how commonly they use it, don’t fully grasp how involved Google is in their daily lives. Even indirectly they can be involved in ads targeting, hosting infra for other apps they may use (or even straight up owning the company as a subsidiary), etc.
Exactly.
You could say the same thing about Amazon and to a lesser extent Microsoft and both have drastically underperformed compared to Google
Think Google is one of the easiest companies to understand.
AI didn't take away the google search but it ruined it.
AI, quantum, robotaxi, antimatter... i'm loading up on every dip
People who bought when this was posted are already up 3.5% lol
this is possibly the most baffling comment i've ever seen on this sub
Paypal i up way more than Google today.
I really hope so, I have a huge position set for the run up to next earnings
350 is tempting. And my average is 170
Googles valuation is tied to their ad revenue from search. Rest is more or less fluff. Google and rest are looking into abyss called margin compression. Who from the giants will come out as winner, Google, Microsoft or Amazon? Answer is all 8 of them, until 4 of them will go bankrupt.
Neither revenue nor profit has tripled in the time period. The net income has grown almost 250% thanks to accounting wizardy of categorizing much of the AI spending under capex.
The tech boom had interesting period where the depreciations started steamrolling even though the bubble had already burst. There will be empty datacenters, contractual penalties and all the nasty stuff if/when the AI buildup takes a breather.
Buy buy buy
They're the play to ride out the SpaceX IPO. They're a massive shareholder if not the largest.
Google is the way
the speculative AI momentum trade is dominating market pricing, not fundamentals like usage or profit.
the ROIC of Google's AI capex is not yet known, and it is mistaken to think otherwise. if the capex has bad ROIC it will tank the speculation. confirmation won't come from personal anecedotes of "finding AI useful" or usage statistics.
confirmation will come from hard data from profit increase that is not dependent on the ai trade.
accounting is heavily distorted because hyperscalers are booking gains on their equity stakes in the downstream hardware/ai lab companies to offset capex and they are delaying booking massive costs on hardware through dubious but legal accounting, eg. purchasing graphics cards and storing them in warehouses because there is no data centre capacity for deployment - they book it as "construction in progress" or "assets in inventory" and are only depreciated (aka start booking costs) once installed and ready for commercial use.
Google search share has been increasing and a big reason is the AI. Look at it compared to DDG that does not have the AI.
DDG market share is down 15% YoY while Google increases.
https://gs.statcounter.com/search-engine-market-share
Google is definitely undervalued. They shared on their last call they were going to add over $230 billion of new cloud revenue in the next 24 months.
That is like adding an entire 2024 Microsoft to Google in the next 2 years. That is mind blowing.
But then there is the new Gemini Siri. That is also going to make Google a ton of money as Apple is running the new Siri in the Google cloud.
But then there is so many different things just killing it with Google.