To The Moon

As the first "Magnificent 7" software company to report earnings, $ Google (GOOG) $ after the July 23rd after-hours announcement of Q2 earnings shock, the results are basically no fault and healthy guidance, but still fell 2%, unlike the previous strong expectations for the AIEarnings expectations are strong, unlike in the past, and investors still have some lingering concerns. $Google A (GOOGL)$

Investment Highlights

1. The search business, which was previously a concern in the market, performed strongly, with both revenue and guidance exceeding market expectations, and there were no significant concerns about "AI stealing our jobs".

   1. Advertising services overall revenue of $64.6 billion, +11% year-on-year, while the search business of $48.5 billion, a year-on-year growth rate of 13.8%, also exceeded most investors' expectations.

   2. In addition, consumption in Q2 has begun to decelerate expectations, and the resulting advertising spending should have entered a weak state, but due to the unabated competition, so advertisers do not dare to casually reduce spending.Q2 in the search revenue growth mainly benefited from the strong performance of the retail and financial services sectors.

2. Meanwhile, cloud business revenue brought by AI reached $10.3 billion, a growth rate of 29%, exceeding market expectations.This number alone seems to lack comparison, and there will be a more direct comparison when the growth rates for Microsoft Azure and Amazon AWS come out as well.

3. More worrying is YouTube's growth rate slipping to 13%, which is also essentially flat quarter-over-quarter in absolute terms.

   1. It could be that the market is expecting more because Q1's growth rate of a staggering 20.9% bolstered the entire search-related advertising business; and

   2. Of course, there is also the reason that last year's base is higher.

   3. But overall, YouTube's business will also be affected by other traditional media, streaming media, short video site content off-peak season.Due to the impact of the Hollywood writers' strike last year, streaming sites entered a content "small year", and now the cycle is back, the impact on YouTube may continue.

   4. In addition, in an election year, Tik Tok may be subject to greater resistance, which may be potentially beneficial to YouTube, which is also a platform for creators.

4. The market is most concerned about the investment and results in AI.Google has continued its ongoing investment in AI technology, particularly in search and cloud computing.This quarter's launch of the AI Overview tool improved search utilization and user satisfaction.

   1. Capital expenditures also continue to maintain a new high, is expected to be at $12 billion per quarter throughout the year, the management said that "the risk of underestimating AI investment is much greater than the risk of over-investment", rather than do wrong, not to do.

   2. CFO also came out to remedy the situation, said also considering cost management, but the focus is "optimize resource allocation and improve the efficiency of the model to control costs", not reduce investment.

   3. At the same time, as capital expenditures began to increase, it is expected that from Q3 onwards, the impact of depreciation and amortization (on the income statement) will increase.

It is estimated that the after-hours reaction is also a true reflection of the investors' stance on Google's management.

On the one hand, Google has been behind in the AI big model, has been catching up but has not been able to flush; on the other hand, there is no way not to invest, a quarter of tens of billions of dollars invested, do not know when the output returns.

Now investors expect nothing more from Google:

1. Stable fundamentals, search and advertising business not to be impacted by AI (it turns out there's not much impact at the moment).

2. It can be earlier in the AI tools to achieve more levels of commercialization.

As a result, the after-hours scenario is prone to the same kind of "good earnings but small losses" that could be seen in the next $Meta Platforms (META)$ and other companies that are also in the advertising business.