Google: Attractive Cloud And AI Opportunity

Simple Investing
08-24

Summary

  • Google's efforts to durably reengineer its cost base, enabling it to expand operating margins even when it is investing in the future of the business.
  • Google Cloud continues to benefit from cloud migration, and it is seeing market share gains and an increasing contribution from AI.
  • AI will be a key long-term growth driver for Google, and the company is integrating generative AI into most parts of its business.
  • Most of Google Cloud’s top 100 customers are already using its generative AI solution.
  • While it is early days in terms of seeing the returns on investment on AI capital expenditures, management underscored that for Google, the risk of under-investing is dramatically greater than the risk of over-investing.

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While the threat of OpenAI and generative AI has been a headwind for Google (NASDAQ:GOOG) (NASDAQ:GOOGL), the stock has done relatively well with a close to 20% year-to-date gain.

Data by YCharts

In this article, I will explore whether the

2Q24 results

2Q24 (Google)

Breakdown of revenues (Google)

Durably reengineering its cost base

Google Cloud acceleration and focus on AI

Generative AI offensive

ROI of AI capital expenditures

Valuation

Summary of 5-year financial forecasts (Author generated)

Conclusion

Google Drops 5%! Antitrust Woes – Is It Still a Buy?
Google's antitrust case has escalated once again. Recently, the U.S. Department of Justice requested the court to mandate the divestiture of its Chrome browser, require Google to separate its Android operating system, and impose restrictions on Google's ability to train AI models. -------------- Is Alphabet still a bet with the lawsuits? What's your target price in the short term?
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