Here is Why GOOG is a Great Opportunity Now

1.

$Alphabet(GOOG)$ is now the cheapest mega-cap stock.

It has the fastest growing cloud unit, the most efficient AI and a cash-cow advertising business.

The market grossly underestimates its potential at 18 times forward earnings.

Here is why GOOG is a great opportunity now: 🧵

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2.

$Alphabet(GOOG)$ is still growing at a rapid pace despite its sheer size. It's been growing revenue at 17% and net income at a staggering 25% CAGR in the last five years. It's now discounted because the market believes the search will die. This is not the case. Let me explain:

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3.

GOOG search volume is still growing...

Despite the worries about AI's taking over the search, Google's annual search volume passed 5 trillion for the first time ever.

What's even better?

Volume of commercial queries has been growing faster.

What does this mean?

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4.

It means that the search is becoming more lean.

People are increasingly using AI for information and productivity related queries but GOOG still dominates commercial queries.

This means that it now shows more ads, to more people in more queries.

This is why search revenue growth has remained and it'll remain robust:

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5.

Projections reflect this.

AI's share of search market won't go beyond 20% in the next 5 years. This is for all queries.

It'll take much more time for AI to take over commercial queries which is Google's real cash-cow.

So, we can easily estimate 10% annual revenue growth from search in the next 5 years.

This gives us $318 billion revenue in 2030.

Assuming 30% profit margin we will have nearly $100 billion income.

Attaching a very conservative 15 times earnings will give us a $1.5 trillion business here.

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6.

GOOG also rapidly expanding its cloud business.

Its cloud revenue grew 35% annually in the last 5 years and it's not slowing down anytime soon.

It has a huge runway as its run rate is currently 1/3 of that of Amazon's.

It's currently at $48 billion run rate. Even if we assume just 25% annual growth rate, it'll reach $150 billion run rate in 2030.

At $150 billion run rate, this business will alone be worth $1.3 trillion assuming 35% net margin and 25 times earnings multiple.

This is just the beginning.

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7.

Youtube is also largely discounted by the market.

It generated $36 billion revenue last year.

For comparison, NFLX generated $39 billion.

Youtube has higher share of screen time than $Netflix(NFLX)$ , and will grow faster than it.

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8.

Market prices around 13% average annual revenue growth for NFLX for the next 5 years.

Given Youtube's higher share of screen time, we can assume 15% annual growth for Youtube.

This gives us $72 billion Youtube revenue for FY 2030.

NFLX has 22% profit margin.

Assuming the same profit margin will give us $16 billion net income.

At 25 times earnings, you have $400 billion business.

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9.

What about Waymo?

It has recently passed 200,000 weekly rides.

It's currently impossible to value it but we know it'll be critical provider of autonomous driving technology.

It's rapidly taking market share from UBER and Lyft in the markets where it's operational.

Even if it becomes half as big as UBER in the next 5 years, given that UBER will grow too, we are looking at a $100 billion business.

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10.

In total, we will have $3.6 trillion business in 2030.

Assuming 10% discount rate, it should have been valued at $2.2 trillion, currently it's valued only at $2 trillion.

Even on very conservative assumptions and very depressed multiple of search business due to AI threat, we have 10% undervaluation.

By any means, this is a great offer for an exceptional business like GOOG.

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