Less than a year ago, I shared that this blog would go through a reboot switching from writing about crypto to personal financing. Well, it seems that post was quite prescient:
Today's stock is Alphabet (Google). I opened a new relatively large position of about 550 shares at an average price of $182 / share.
I'll write an in-depth article soon on why I like Alphabet, but as Soros used to say "Invest first, investigate later".
Less than a year later, that position has more than doubled and I have yet to write an in-depth article about why I like Alphabet. Well, let me provide a short summary of why I like it as a shareholder and where the risks may lie:
What I like:
Google, unlike many of the frontier AI labs, owns the full stack. From TPU chips, Google Cloud hosting, closed (Gemini) and open (Gemma) models to consumer devices, they own everything, including the ability to train the AI models from their users' data (hoovered up from Google Maps, YouTube, Search data, etc.)
From 2022 - 2024, the consensus thinking was that Google was late to the game, which in hindsight, was true. But what most people did not recognize at the time was that Google was swimming like a duck. Above the water's surface, things seemed to be status quo but underwater, the team was working around the clock. The Code Red announcement -- which Sundar must have known would be leaked -- only reinforced the urgency of the situation.
Now, following this week's earnings, it's clear that Google Cloud is a key advantage over the independent AI labs (namely OpenAI and Anthropic), who have to pay a hefty margin on top of the already competitive API pricing they are charging its customers. Since Google is vertically integrated, they need to balance serving its internal customers (Gmail, Gemini users) and its external customers (Anthropic and other hosted models). Per Sundar on a recent podcast interview, internal customers have much longer LTV than external customers, who can switch with little notice.
I like owning Google because it gives me wide exposure AI. It's like owning a basket of AI stock all under one roof. I don't have to worry about excess capex capacity because its external cloud customers can soak it up; I can't say the same for Meta or Oracle, who have similar problems but different end customers to serve.
Given my bullish views on AI, holding Google for the long-term is a no brainer to me.
It's quite amazing how quickly the public narrative can shift once execution is on display in the public markets. I think having quarterly reporting is a strength, not a weakness, of the U.S. stock market.
What I'm keeping an eye on:
Given my bullish views, my concern is primarily focused on execution and over investment in the near-term. Google is projecting capex of $180-190B in 2026, while their TTM cash flow (before capex) is $175B. This year they will essentially breakeven on cash flow. Another way to think about overextension is if they allocate their internal resource to pet projects or lesser known ROI projects. AI research can be a slippery slope: How much capex (or human researchers) do you allocate to a project without knowing what the return may be? You know you need to allocate resources because the math shows that by throwing more compute and people behind a problem, the better the solution but what does that look like?
Already we're hearing that researchers, who are assessed based on their server utilization, are re-running programs to artificially boost internal metrics lest they draw their manager's ire. How much of that is going on at Google today? If AI developments hit a plateau, how will Google know if its researchers are doing real work vs. fake work?
The AI race now appears to be Google's to lose. They have all the cards, now they just need to play it smart.
