1/ $Alphabet(GOOG)$ is the cheapest mega-cap stock now.
Cloud business is exploding, search remains strong, and Gemini is nearing 500 million monthly active users.
Here is my GOOG investment case: 🧵
2/ The business is exploding...
In the last quarter, they beat estimates in every growth metric.
This is a $2.3 trillion business, casually posting 14% YoY revenue growth.
Yet, the market still drastically undervalues it.
Here is why:
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3/ Search is not going anywhere.
'Search is dying' is a narrative that's been around since ChatGPT was launched in late 2022.
Search revenue grew 12% YoY last quarter.
What's better is that the search volume is still growing.
AI overviews drove 10% growth in search volume.
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4/ GOOG search will remain as a cash-cow.
It generated $208.3 billion in revenue last twelve months.
Even if we assume just 8% annual growth, it'll generate $306 billion in revenue in 2030.
Assuming a 35% net margin, this segment will generate a $107 billion net income.
Slap a "dying business" multiple of 10, and we get a $1 trillion market cap from search.
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5/ Google Cloud is also exploding.
It grew 32% YoY last quarter, reaching $13.6 billion in revenue.
It has achieved a phenomenal 35% average annual growth since 2019 and topped $49 billion annual run rate.
Yet, it's just starting out.
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6/ Cloud alone will be worth $1 trillion.
Its growth is accelerating.
Even if we assume just 25% annual growth for the next 5 years, it'll generate $150 billion in revenue in 2030.
At a 30% net margin, we will get $45 billion in net income from the cloud.
At 25 times earnings, that business alone will be worth $1.1 trillion.
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7/YouTube is taking over TV.
It has reached $38 billion in annual revenue.
Assuming a 15% annual growth for the next 5 years and a 35% net margin, we will get $76.4 billion in revenue and $26.7 billion in net income from this business.
At 20 times earnings, it'll be a $534 billion business.
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8/ Services is Google's hidden gem.
It's almost always ignored, but it's a giant contributor to revenue.
Google's network and services generated $72 billion in revenue last year.
Assuming just 10% annual revenue growth and 30% net margin, it'll generate $116 billion in revenue and $35 billion in net income.
At 20 times exit multiple, it'll be another $700 billion business.
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9/ Waymo is the leading robo-taxi provider.
It's now completing over 250,000 paid trips in the US.
It's the only robo-taxi business operating at this scale, and it's just beginning.
It has just started test drives in NYC and will keep rapidly expanding.
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10/ GOOG is leading the AI race.
Though it was perceived to be behind in the race, it is actually ahead of everybody.
It's the only tech company active in all nine categories of AI hardware and software.
Plus, the Gemini app has now reached 450 million monthly active users, taking market share from ChatGPT.
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12/ In sum, here is what GOOG businesses will be worth in 2030:
- Search: $1 trillion
- Cloud: $1.1 trillion
- Youtube: 534 billion
- Services: $700 billion
Let's be very conservative and assume $500 billion for all remaining businesses that include DeepMind and Waymo.
In sum, we will have a $3.8 billion business.
Discounting it back to now, we get a $2.3 billion business. This is the exact valuation we have now.
Meaning, at a very conservative growth scenario, GOOG can easily deliver a 10% annual return.
In just a moderately bullish case, it can easily deliver a 15% annualized return.
Given it's one of the strongest companies in the world, this is an attractive risk/reward for those looking for foundational positions.
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