To The Moon

🌟🌟🌟Among the Magnificent 7 stocks, Alphabet $Alphabet(GOOG)$  $Alphabet(GOOGL)$  sits at the bottom of the Magnificent 7 valuation table, despite matching it or outgrowing its peers in key areas.

Here is why Google looks the most undervalued today :

P/E ratio is the cheapest 

Google's P/E ratio is 19.93.  In contrast Nvidia $NVIDIA(NVDA)$  P/E ratio is 45.73, $Microsoft(MSFT)$  P/E ratio is 36.71 and Tesla $Tesla Motors(TSLA)$  P/E ratio is 179.05.

Double Digit Diversified Growth 

In Q1 25 Google's revenue jumped 14% year over year to USD 90.2 billion, with its Search business up 10% despite AI driven disruption fears.

Over the past 5 years, Google's total sales are up 117% to USD 360 billion.

YouTube and Google Cloud each now pull in about USD 10 Billion per quarter,   growing at double digit rates.

Google Cloud's Profit Inflection

Google Cloud turned a USD 2.2 billion operating profit in Q1 25 with an 18% margin. 

If Google Cloud can scale to USD 100 billion in revenue at 25% margin, it alone could add USD 25 billion to the bottom line.  This is on top of Google's current USD 117.5 billion annual operating income. 

AI Leadership Underappreciated 

Analysts worry that OpenAI or other competitors could eat into Google's Search business but todate  Google's AI powered products such as Gemini, video tools, Generative shopping assistants,   have  not dented its core business, yet they add value to Google which few others in the Magnificent 7 can match. 

Here is how Google's AI commitments and investment could set the stage for re-rating its valuation in the future :

1.  DeepMind and Anthropic investments

Since 2021, Google had plowed over USD 3 billion into Anthropic which includes a USD 1 billion investment earlier in 2025 plus its ongoing DeepMind R&D budget - giving it its first mover access to cutting edge models. 

This means that Google can bundle premium AI serviced such as Gemini APIs, Vision and Video into Search, Cloud and Workspace at near zero incremental cost. 

2.  Google's AI Futures Fund locks in startups and future revenue 

The AI Futures Fund commits capital, Cloud credits and exclusive model access to select AI startups.  This fund will back start ups from seed to late stage and will offer varying degrees of support.  The latest startups include meme making platform Viggle and the Web toon app Toonsutra.

As these companies grow, they will generate sticky Google Cloud usage and potentially exclusive licensing deals, adding a nascent but fast growing revenue stream not reflected  in current Google's earnings. 

3.  Cloud margin growth from AI workloads 

In Q1 25, Google Cloud swung to an USD 2.2 billion operating profit with an 18% margin.  This can be attributed in part to its optimised AI compute pricing. 

As next generation chips and models drive higher utilisation, consensus estimates that Cloud margins will rise towards 25%.  This translates to USD 20 billion to USD 25 billion in incremental annual profit if revenue hits USD 100 billion. 

4.  Multiple re-rating catalysts ahead 

Wall Street Analysts typically assign pure play AI leaders 30x to 40x forward earnings.  If Google can demonstrate a few billion in annualised AI service profit, its low P/E ratio currently could easily re-rate by 20% to 30% to catch up. 

Concluding Thoughts 

Google's massive,   multi year AI investments are not just R&D expenditures, they are the seed for new high margin product lines that have not been reflected in the current valuation.  As those businesses grow, Google's once modest P/E ratio should command a premium closer to its peers.   This quiet AI revolution of Google is about to get very noisy. 

Google will not be staying in this bargain basement valuation for long.  Buckle up!  This undervalued titan is gearing up for a lift off and as an early investor, I stand to reap the rewards of Google's Blockbuster Re-rating! 

@Daily_Discussion  @TigerStars  @Tiger_comments  @Tiger_SG  @CaptainTiger  @TigerClub