The great Google debate

Why the story isn't clean

I don’t think I’ve interacted with a more toxic investor group than Alphabet longs. The closest comparisons would be fandoms or furies from back in the mid 2010s, when just by saying something negative about My Little Pony or Star Wars would render your twitter mentions unusable for weeks at a time. In order to explain why I’m so negative on

Alphabet I thought I’d write out some more detailed thoughts. With one caveat, this isn’t meant to be a short now thesis, more of the reason Alphabet valuation is a lot more complex than the bulls would like you to believe and why you should generally stay away.

First, if you are new here, I encourage any of you to read my thoughts I wrote up after their last earnings call, as gives some thoughts on valuation.

The argument for or against Alphabet as long comes down to three key points:

1. search and its future growth avenues

2. YouTube growth

3. Other bets, specifically cloud growth with a upshot surprise of Waymo

Where you stand on these key points defines where you stand on the stock. All of these points are not near term inflections in either direction. Which is why its so toxic to discuss Alphabet. The bulls can claim everything will work out and any potential pain point issue will be fixed, and bears can claim any small tremor is signs of an earthquake coming.

The biggest bull argument is one of ignoring any parts of the ‘story of the stock’ and focusing only on the numbers. Pointing out that revenue for search grew at 10% yoy this past quarter and that google has a growing AI search business. Then they pivot to an argument of one of market disbelief, comparing Alphabet today to Meta in 2022, or Microsoft under Steve Ballmer (which is actually a good comparison but not for the reasons they think) and then saying ‘look you buy google now and you 5 - 10x your money quickly. They finish their sequence with Waymo and what it could be.

Let’s start with Search and what we can learn from its revenue growth.