Alphabet Sheds $500B as Search Slowdown and AI Capex Burn Cash Flow

搜索放缓叠加AI资本支出消耗现金流，Alphabet市值蒸发5000亿美元 谷歌搜索增速放缓源于外汇压力以及向早期AI查询的主动转型，而非在竞争中发生结构性市场份额流失。 Joseph Carlson探讨了Alphabet股价单日暴跌12%的现象，剖析了华尔街对生成式AI正在主动蚕食其核心搜索业务的担忧。他将搜索业务增速放缓置于特定背景下考察，指出这是暂时的外汇逆风以及上年同期高基数所致，同时强调Google Cloud超过100%的强劲同比增幅和36%的利润率展现了其底层的运营实力。在对早期SpaceX投资带来的一次性收益扭曲进行正常化调整后，Carlson指出，尽管基础设施支出导致近期自由现金流转负，但谷歌远期估值依然具有吸引力。本期内容最后还更新了万事达卡创历史新高、微软坚挺的企业云利润率，以及DoorDash可能以170亿美元收购Instacart的消息。 财报发布后Alphabet股价重挫约12%，市值蒸发约5000亿美元，原因在于谷歌搜索业务增速放缓至12%，且自由现金流转为负90亿美元。 (0:00) 管理层将搜索业务放缓主要归因于外汇逆风、欧盟针对跨境零售的监管变化，以及上年同期世界杯带来的高基数，同时也是主动向早期AI概览迁移的结果。 (14:15) Google Cloud表现大幅超出预期，季度收入同比增长103%至300亿美元，同时保持了36%的高营业利润率。 (20:24) DoorDash宣布了一项雄心勃勃的170亿美元收购Instacart的要约，以拓展全渠道杂货配送业务，不过该交易视监管机构对市场的界定而面临巨大的反垄断障碍。 (27:32)

Following a 12% single-day selloff in Alphabet shares, investor Joseph Carlson argues that market fears over generative artificial intelligence permanently breaking Google Search confuse an intentional monetization transition and macro headwinds with structural business decline. Search Deceleration Versus the AI Cannibalization Narrative (11:14) Alphabet suffered a single-day drop of roughly 12%—falling to approximately $283 to $285 and wiping out nearly $500 billion in market capitalization—after Google Search revenue growth slowed from 16% year-over-year in the second quarter to 12% in the third quarter. Commentators like Gene Munster pointed to the slowdown as proof that alternative AI agents and chatbots are actively siphoning away Google's core franchise. However, Alphabet management identified foreign exchange fluctuations as the single largest contributor to the deceleration. Additional non-structural factors included an EU customs regulatory change dampening Asia-Pacific retail ad spend and tough comparisons against second-quarter media spending pulled forward by the FIFA World Cup. Management acknowledged that higher usage of conversational 'AI mode' queries created an authentic near-term drag because new AI overview formats monetize at lower rates than traditional search. Carlson views this as an intentional, managed migration away from legacy 'ten blue links' rather than competitive erosion. While ad coverage and multi-turn ad sessions are still scaling, Carlson expects the market narrative around AI cannibalization to create potential overhang on the stock for several quarters. Capital Expenditure Surge, Negative Cash Flow, and Valuation (9:11) Google's financial profile experienced an unprecedented shift as massive infrastructure investments pushed quarterly free cash flow to -$9 billion (a -7% margin), down from historical margins of 20% to 30% that typically generated $60 billion to $70 billion annually. Trailing twelve-month free cash flow shrank to $19 billion (a 4.2% margin). Carlson attributes this contraction to aggressive data center and hardware spending rather than operational decay. Evaluating Alphabet on unadjusted trailing earnings per share causes confusion due to an unrepeated ~$100 billion GAAP accounting gain from an early equity stake following SpaceX's initial public offering. On a normalized non-GAAP forward basis that strips out investment windfalls, Alphabet trades at roughly 24 times 2026 earnings, 18.6 times 2027 earnings, and 15.5 times 2028 earnings at roughly $285 per share, alongside projected annual normalized earnings-per-share growth between 20% and 32%. Cloud Acceleration and Non-Search Expansion Pillars (20:24) Beyond search anxiety, Google Cloud posted quarterly revenue of $30 billion, growing 103% year-over-year with a 36% operating margin, while cloud backlog expanded from $513 billion to $560 billion. Management featured the head of Google Cloud on the earnings call for the first time, signaling an intentional corporate evolution from a pure search engine into an enterprise information and cloud provider. Alphabet operates at a $500 billion annualized run rate, with analyst projections targeting $727 billion to $730 billion by the third quarter of 2028. Additional long-term growth vectors include YouTube and its subscription services, which grew roughly 10% year-over-year and continue to capture more television viewing time than Netflix. Alphabet is also advancing its Gemini and Argon AI models, scaling its Waymo autonomous vehicle fleet, and commercializing custom in-house silicon. Comparative Earnings Dynamics: Microsoft, Mastercard, and DoorDash (25:15) Carlson's wider portfolio fell just 0.6% on the day of Google's selloff, buffered by gains in Mastercard, which hit fresh all-time highs despite recurring bear theses regarding sovereign real-time payment rails. Meanwhile, Microsoft reported a 19% revenue increase and 50% operating margins, with Microsoft Cloud reaching $63 billion. Unlike Google, Microsoft maintained disciplined capital expenditures below expectations, allowing it to project positive free cash flow through fiscal 2027 while internally funding its infrastructure expansion. In consumer tech, DoorDash reported 28% year-over-year order volume growth to 993 million quarterly orders and pursued a proposed $17 billion acquisition of Instacart to expand beyond restaurant food delivery into general retail. Carlson notes that while acquiring Instacart requires paying a premium, clearing antitrust scrutiny will depend entirely on whether regulators define the market narrowly around food delivery apps or broadly against retail logistics giants such as Amazon and Walmart. Carlson intends to hold his Alphabet position despite anticipating near-term narrative pressure over search monetization, viewing the company's cloud profitability, non-search assets, and normalized valuation as sufficient justification for patience.

Joseph Carlson 针对谷歌最新财报后的股价重挫分析指出，尽管搜索业务放缓与巨额资本开支导致自由现金流转负，并重新引发了市场关于生成式 AI 蚕食核心广告的恐慌，但这主要源于宏观高基数、汇率波动以及向 AI 搜索的主动过渡。结合谷歌云的爆发式增长与非经常性收益剔除后的低估值，他认为谷歌并未出现结构性衰退，其长期投资逻辑依然稳固。 搜索增速放缓与 AI 蚕食论的现实剖析 (11:14) 谷歌最新财报公布后股价单日大跌约 12%，抹去近 5000 亿美元市值，股价跌至 283 至 285 美元区间。以 Gene Munster 为代表的电视评论员将大跌归咎于核心搜索业务的增长失速，认为 ChatGPT、Anthropic 等生成式 AI 工具正在实质性分流其核心广告盘。财报数据显示，谷歌搜索营收同比增速确实从上一季度的 16% 放缓至本季度的 12%，低于市场预期。然而，管理层在业绩电话会上明确指出了三大非结构性减速因素：外汇波动是导致季度间增速回落的最主要单项因素；欧盟取消小额包裹免税（de minimis）政策削弱了亚太跨境电商在欧洲的广告投放；此外，上一季度因 FIFA 世界杯带来的娱乐传媒广告激增，导致当期面临极高的对比基数。 关于 AI 蚕食的争论，管理层承认 AI 搜索模式与 AI Overviews（AI 概览）的激增对当期收入形成了挤压，但强调这属于主动转型而非被动瓦解。传统的“十条蓝色链接”历经十余年商业化打磨，变现效率极高；而在用户向多轮对话式搜索迁移的过程中，AI 概览的广告变现架构仍处于初期探索阶段。尽管短期内每次查询的变现价值较低，但早期广告测试反馈良好并正在扩大覆盖范围。Carlson 指出，搜索并非面临不可逆的衰退，而是正在经历商业模式的自我演进与代际更替。 自由现金流转负与剔除扭曲后的真实估值 (6:00) 除搜索放缓外，谷歌前所未有的资本开支使得自由现金流急剧恶化。过去谷歌长期维持 20% 至 30% 的自由现金流利润率，过去 12 个月（TTM）现金流常年在 600 亿至 700 亿美元之间。然而，为构建庞大 AI 算力与基础设施，本季度自由现金流骤降至 -90 亿美元，利润率为 -7%，拖累 TTM 自由现金流暴跌至 190 亿美元（利润率仅 4.2%）。 与此同时，常规每股收益（EPS）指标因非经营性会计处理出现严重失真。由于早期投资的 SpaceX 完成首次公开募股，谷歌将约 1000 亿美元的一次性投资收益计入净利润，导致 GAAP EPS 同比虚高 120%，进而扭曲了静态市盈率。剔除 SpaceX 等非经常性收益后，谷歌的非 GAAP 归一化远期估值已具备显著吸引力：对应约 285 美元股价，其 2025 年预期市盈率为 30 倍，2026 年降至 24 倍（EPS 增速约 25%），2027 年为 18.6 倍（EPS 增速约 32%），2028 年仅为 15.5 倍（EPS 增速约 20%）。Alphabet 当前年化营收运行速率已达 5000 亿美元，分析师预计 2028 年第三季度年化营收将攀升至 7270 亿至 7300 亿美元，表明底层业务基本面依然保持强劲扩张。 谷歌云高歌猛进与多元化战略支柱 (20:24) 在搜索业务遭遇舆论风波之际，谷歌云（Google Cloud）呈现出爆发式增长，单季度营收达到 300 亿美元，同比大幅增长 103%，且营业利润率稳定在 36% 的高位。这表明其激进的基础设施投入正在转化为极具盈利能力的云端算力收入。虽然部分投资者对云业务待履行订单（Backlog）从 5130 亿美元增至 5600 亿美元的环比放缓表示担忧，但 Carlson 认为营收翻倍必然加快既有订单的消耗，这反映了真实的商业转化而非疲软。 除云业务外，Alphabet 旗下其他核心资产同样构筑了坚固防线。YouTube 及其订阅服务同比增长约 10%，在电视端占据的观看时长持续领先于 Netflix。此外，公司正推进自研芯片商业化、Gemini 与 Argon 前沿 AI 模型开发，以及 Waymo 自动驾驶出行服务的商业拓展。谷歌云主管首次直接出席财报电话会，体现出管理层正有意将公司定位从单一的搜索巨头，重构为涵盖搜索信息与企业级云计算的双引擎科技巨头。Carlson 预计未来两到四个季度市场对搜索的疑虑可能压制股价，但他明确表示不打算减持任何仓位。 组合横向对比：微软稳健、万事达新高与 DoorDash 豪赌 (24:14) Carlson 结合自身投资组合的其他核心标的进行了横向对比。万事达（Mastercard）作为其第一大持仓（持仓市值 21.2 万美元，浮盈 6.5 万美元），展现出极强的抗风险能力，股价创下历史新高，年内上涨 13%，五年内累计上涨 91%，有效反驳了主权数字支付体系（如巴西 Pix）将颠覆信用卡网络的唱衰论调。 微软最新财报呈现出更为严谨的资本分配逻辑：总营收增长 19%，营业利润增长 21%，整体营业利润率高达 50%；其中微软云业务季度营收达到 630 亿美元，同比增长 30%（恒定汇率下增长 31%）。与谷歌现金流转负不同，微软资本开支节奏更契合实际需求，预计在 2027 财年全周期内仍将持续保持自由现金流为正，依靠自身营业利润有机支撑数据中心建设。 此外，DoorDash 季度订单量同比增长 28% 至 9.93 亿单，并正式提出以约 170 亿美元收购生鲜配送平台 Instacart。此举旨在补齐其在超市与大卖场（如 Costco、Target）的履约网络，加速向本地全品类商业平台转型。虽然该交易溢价较高且面临反垄断审查不确定性，但若监管机构将竞争界限放宽至涵盖 Amazon、Walmart 的广义零售物流市场，合并案获批概率将显著提高。 Carlson 总结指出，市场关于谷歌搜索陷入结构性瓦解的判断缺乏证据，当前估值回落是由搜索短期减速、AI 探索期变现率偏低与负自由现金流共同引发的情绪踩踏。尽管非 GAAP 估值已进入历史低位区间，但由于 AI 替代叙事在未来两到四个季度内仍将形成舆论压制，投资者可能需要忍受短期波动。后续的核心不确定性在于谷歌能否如期验证 AI 搜索的高阶变现能力，以及 DoorDash 170 亿美元收购案能否通过严苛的反垄断审查。

[20:24] Joseph Carlson: Google is wanting to transition from being known primarily as a search business to being known as a search information business plus cloud. [6:00] Joseph Carlson: Google's no longer an expensive company based on the earnings. [0:00] Joseph Carlson: The important thing is to buy into great companies at good deals and hold them long-term.

[0:00] Google stock just reported earnings and [0:02] the stock today is down 12% as a result. [0:05] That's around $500 billion of market cap [0:07] wiped away from this company. A massive [0:10] amount of value loss. In fact, that is a [0:12] $39 decline in the stock price, bringing [0:15] it well below $300 per share. And up [0:18] until now, Google has been one of the [0:19] best stocks in the market. Their [0:21] earnings report quarter after quarter [0:22] have been great. So, what happened in [0:24] yesterday's report that's causing this [0:26] big sell-off? Well, we have renewed [0:28] fears. Remember when everybody was [0:30] concerned about chatbt destroying Google [0:32] search? Well, those same fears are [0:34] starting to renew. Alphabet's earnings [0:37] miss reflect the first real sign that AI [0:39] is taking a bite out of search. We also [0:41] have Gene Monster going on to television [0:43] saying that this is not good. [0:45] >> They're saying that AI search queries [0:48] had an impact on search revenue. So, how [0:50] you [0:51] >> So, that's not good. [0:52] >> Yeah, exactly. That's their core [0:53] business and it is back to that [0:55] narrative that their core business is [0:57] being cannibalized by AI. [0:58] >> Google search is now being cannibalized [1:00] by AI. It's not good. Now, is that true? [1:04] How much of this is really because of [1:06] AI? Is the search business going down? [1:09] We had a sharp deceleration quarter over [1:11] quarter and that's really what investors [1:12] are concerned about today. And I want to [1:15] go over this and give some clarity [1:16] because I feel like a lot of the things [1:18] that people are saying online, a lot of [1:20] the posts, a lot of the Discord [1:21] conversations are just not accurate. [1:24] They're they're not accurate. What I [1:26] hope to do in this episode is clarify [1:28] the real situation of Google. what's [1:30] actually going on with this company, not [1:32] just with the search and cannibalization [1:34] situation, but also with the valuation [1:36] of the stock, with Google's financial [1:38] situation, with them having their [1:40] earnings go up while their free cash [1:42] flow goes down, while their capex is [1:44] explosive. It makes the whole situation [1:46] more difficult to understand, and I [1:47] think it's important to go over and [1:49] clarify what's really happening with [1:51] Google. So, we're going to be diving [1:52] into it deep. We'll be going over the [1:54] entire situation and trying to make [1:56] sense of it. Now, we also have Microsoft [1:59] that reported earnings. Mastercard, huge [2:01] holding of mine, reported earnings, and [2:03] Door Dash reported earnings and said [2:05] that they're going to try to buy [2:06] Instacart. So, we'll be going over those [2:08] as well. Now, to start things off, I [2:10] want to first look at some charts about [2:13] Google's situation. For example, we'll [2:15] just start with the price chart. Google [2:17] stock dropped almost $40 per share down [2:19] to $283 a share. Even after this drop, [2:23] Google still has a 14% kagger since [2:26] 2021, meaning that it's widely [2:28] outperformed the QQQ and the S&P 500 [2:31] over the past 5 years. That is including [2:33] with the recent drop just today. Now, [2:35] Google historically got up to $399 per [2:38] shares. So, basically, it got up to [2:40] $400. The lowest that it's got over the [2:43] past 5 years is $83 and the median is [2:46] $156. [2:48] So right now Google is still a good [2:50] performing stock even with this drop. It [2:53] brings it down and it takes away a lot [2:55] of the excess performance but the median [2:58] over the past 5 years being 156 shows [3:00] that this thing has really surged up [3:02] over the past 2 years. Now we can look [3:04] at how this price change affects my [3:06] portfolio because Google was one of my [3:08] largest positions and it did hit it [3:10] hard. The impact of Google's drop on my [3:12] portfolio was equivalent to 1.5%. Now, [3:16] when I look at the one day, I'm actually [3:18] only down6%. [3:20] But that's because Google's gone down a [3:21] lot, while a lot of other companies have [3:23] gone up. We look at Google and it's down [3:25] 12%. That's $23,400. [3:28] But then we have Meta that's up $5,000 [3:30] today. We have Mastercard up 4%. It's my [3:32] largest holding, so it's up $8,700. [3:36] Amazon is down today, adding to the [3:37] losses. But other companies like Texas [3:40] Roadhouse, Moody's, Door Dash, Uber, [3:42] they're up slightly. So overall, my [3:45] portfolio is down a little less than the [3:47] market today. Not so bad considering one [3:50] of my largest holdings just got crushed. [3:52] But one thing worth repeating is that [3:53] investing in individual stocks brings [3:55] along a lot of volatility. These [3:57] companies go up a lot. They drop [3:59] quickly. Investors repric them with any [4:01] additional narrative or news. I've seen [4:03] it with Google. I've seen it with [4:04] Netflix. I saw S&P Global go from a low [4:07] to a big high over the past month. [4:09] Mastercard mid this year was super low. [4:12] Now, it's at an all-time high. Stocks [4:14] trade around like crazy. The important [4:16] thing is to buy into great companies at [4:18] good deals and hold them long-term. Now, [4:20] let's go ahead and take a look at [4:21] Google's financial picture here. We can [4:23] start off with the revenue of the [4:24] company. Now, it's important to [4:26] highlight that this is the revenue rate [4:27] of growth year-over-year on a trailing [4:29] 12-month basis. So, this isn't their [4:31] total revenue. It's not like it's going [4:33] to be flat and then decline. This is the [4:35] rate of growth. The revenue has been [4:37] growing on a trailing 12-month basis [4:39] above 20%. That's super fast. Google's [4:42] still a super fast growing company and [4:45] it's going to continue to grow faster in [4:47] the future even with search [4:48] deceleration. That's because the cloud [4:50] business is so massive and the cloud [4:52] business is growing above 100% [4:54] year-over-year. But we look at it and [4:56] it's going to get up to around 25% [4:58] revenue growth. That's the estimates. [5:00] And then it will taper off and go down [5:01] to 23%. What I see here is very [5:04] encouraging. This is one of the best [5:05] revenue growth lines I've seen for a [5:07] large company. So I don't see any [5:08] concerns here. In fact, if I flip over [5:10] and look at the total revenue growth, [5:12] this is what it looks like. This is the [5:14] TTM revenue over time, you can see it's [5:16] growing around 14.5% keer. In Q3 of [5:20] 2028, Google's expected to have $727 [5:24] billion of revenue by analyst estimates. [5:26] This is massive continued growth in [5:28] revenue. And this is also growth in [5:30] revenue in a really good product line. [5:32] Cloud is not some unprofitable business. [5:34] It has high operating margins. That's [5:36] the reason that they're investing in it [5:37] so aggressively. This is what that [5:39] continued revenue growth at a fast pace [5:41] looks like over time. It actually is [5:43] going to be accelerating from where it [5:44] is today. We're going to get to around [5:46] $730 billion in revenue in 2028, which [5:51] is just incredible. Google already said [5:53] that they're at a half trillion run rate [5:55] in revenue. These are staggering numbers [5:57] and this is not what an unhealthy [5:59] company looks like. Now, as we look at [6:00] these metrics, before getting to the [6:02] debate of whether or not AI is [6:04] disrupting Google's search, I want to [6:06] take a look at the earnings per share [6:07] because this is probably the most [6:09] confusing part of Google's financials. [6:12] If you're just looking at the EPS growth [6:14] over time, or even if you're looking at [6:15] the PE ratios, that doesn't really show [6:18] you what's going on. And it also doesn't [6:20] even show you the valuation of Google [6:21] clearly. It's one of these cases where [6:23] the numbers are technically accurate, [6:24] but without proper context, they're [6:26] incredibly misleading. And that's what [6:28] we see here. This chart shows the [6:30] earnings per share rate of growth [6:32] year-over-year on a trailing 12-month [6:34] basis. So, every one of these bars is a [6:36] quarter going back 12 months in the [6:38] earnings per share growth. Now, did [6:40] Google really grow their earnings per [6:42] share by 120%. No, they didn't. They [6:45] just invested in SpaceX. SpaceX IPOed. [6:48] Google made like a hundred billion and [6:50] that was counted as net income, which is [6:52] counted as earnings per share. So, the [6:55] huge majority of this big EPS spike is [6:58] just from SpaceX investment. So, with [7:00] that big SpaceX sale, that also means [7:02] that the forward-looking earnings per [7:03] share growth is also misleading. [7:05] Google's not going to actually shrink in [7:07] earnings per share over time. It's still [7:09] going to continue growing at a fast [7:10] pace. It just isn't represented here. [7:12] So, if you're looking on a stock [7:14] analysis website like Qualrrim or any [7:16] others, you typically don't want to use [7:17] the trailing 12 months PE ratio for [7:19] Google because that includes the SpaceX [7:22] investment and any other investments [7:23] they're selling. On the Ford PES, those [7:26] are typically non-GAAP, meaning that the [7:28] analysts already rule out SpaceX. So, [7:30] the Ford PE should be accurate. And when [7:33] we see the normalized PE comparison, [7:35] this is what it looks like. This shows [7:37] the valuation on a Ford PE basis based [7:40] on Google trading at a $285 share price, [7:43] which is the price it's at right now. [7:45] And if we look at it, we see that the [7:47] normalized PE based on 2025 is 30 times. [7:51] So that's 2025. If we look at this [7:53] year's estimates, 2026, it's trading at [7:56] 24 times. If we price Google based off [7:58] of 2027's estimates, and we normalize [8:01] out SpaceX, that trades at around an [8:04] 18.6 times. We go out one more year, [8:06] we're looking at 2028's normalized [8:09] estimates, and it trades at 15.5 times. [8:12] So, a basic way to think about it is [8:13] right now, factoring out all the crazy [8:15] one-time events, Google's trading around [8:18] 19 times forward earnings, and based on [8:20] 2028, it's trading around 15 times. [8:23] Google's no longer an expensive company [8:25] based on the earnings. And if we [8:26] visualize these one-time sales and how [8:28] they affect the EPS, this gives you a [8:30] more clear picture. It basically had a [8:32] one-time massive earnings spike and then [8:34] it will come back down. But over time, [8:36] Google's really steadily growing their [8:37] earnings per share. And in fact, [8:39] Google's growing their earnings per [8:40] share quite fast. If we look at a [8:41] normalized rate of growth in 2026, [8:44] they're going to grow around 25%. [8:47] 2027, that's 32%. And again, that's not [8:50] counting investment gains. This is [8:52] normalized with that out of the mix. In [8:54] 2028, they're expected to grow around [8:56] 20%. So right now over the next couple [8:59] of years, Google's actually a really [9:00] fast EPS grower. Now that's good for the [9:02] Google shareholder, but most investors [9:04] are ignoring this and it's not their [9:06] primary concern. A lot of investors are [9:08] looking at the free cash flow and the [9:10] free cash flow has been going down [9:11] steadily. As Google invests in their [9:13] massive infrastructure, they're using [9:15] all of their cash flows. We can see that [9:17] in the most recent two quarters, it's [9:18] flipped into the negative and it's [9:20] brought the free cash flow margin, the [9:22] amount of cash flow converted from [9:24] revenue from around its typical range of [9:26] like 20 to 30%. It was Google was [9:29] historically one of the most profitable [9:31] companies literally in the world. In [9:32] fact, I think it was the most profitable [9:34] and now it's not profitable at all on a [9:37] cash flow basis. Minus 7% free cash flow [9:39] margin in the most recent quarter. Minus [9:41] $9 billion of free cash flow. We look at [9:43] this on a trailing 12-month basis, and [9:45] you see the trend here. It's going along [9:48] earning great free cash flow for years, [9:50] putting up like 60 to 70 billion in free [9:53] cash flow over the trailing 12 months. [9:55] The free cash flow margin is around 20 [9:57] to 25%. [9:59] Very healthy business. Then we see it [10:01] just plummet. The past two quarters, the [10:04] free cash flow has fallen off a cliff. [10:06] It went from the 20 to 25% range now to [10:09] 4.2%. The free cash over the trailing 12 [10:12] months is 19 billion. It might actually [10:14] go negative on a trailing 12-month [10:17] basis, but we'll have to see over the [10:18] next two quarters. So far, this doesn't [10:20] look too bad for Google. The revenue is [10:22] growing really fast. The earnings are [10:23] holding up, and even factoring out the [10:25] one-time SpaceX gains and that type of [10:27] stuff. The EPS is growing really fast [10:29] and is expected to over the next couple [10:31] years. We also have a company that is [10:33] investing heavily into capex to fund [10:36] future growth in cloud. And the cloud [10:38] has been not just promising, it's [10:39] already paying off. We're already seeing [10:41] the dividends from the cloud growth. So, [10:43] in and of itself, I don't see anything [10:45] here that should warrant a 12% price [10:47] reduction in the stock. When we look at [10:50] what investors are concerned about, we [10:52] can dive into the revenue by segment. [10:54] This is where investors really get [10:55] concerned. In this gradient of green, we [10:58] have one section that makes up roughly [11:00] half of it. In fact, it's just shy of [11:02] half over the most recent quarter, and [11:04] that is Google search. When I look at [11:06] Google search, this is what it looks [11:08] like. Okay, what I see is that it's [11:11] growing 16% over the trailing 12 months. [11:14] On a TTM basis, it doesn't look too bad, [11:17] but you'll notice that just over the [11:19] past quarter, it decelerated. In fact, [11:21] when we switch this to a quarterly [11:23] basis, it paints a clear picture here. [11:25] In the most recent quarter, Google [11:27] search grew by 12%. Now, that's decent [11:30] growth generally speaking. The issue is [11:33] is that last quarter it grew by 16%. So [11:36] it decelerated from 16 to 12 and that's [11:39] quite a deceleration. Investors were [11:41] expecting and Wall Street was expecting [11:43] for Google search to grow much faster. [11:45] So they missed on this Google search [11:47] growth and that of course raises [11:49] Pandora's box of all the questions. The [11:52] what if it's because of this? What if [11:53] it's because of that? Is it because of [11:55] Muse? Is it because of Grockbot? Is it [11:58] because of AI overviews? What's causing [12:00] the massive deceleration in Google [12:02] search? And this is the moment the bears [12:04] have been waiting for. See, up until [12:06] now, Google search wasn't only doing [12:07] well, it just kept accelerating. It kept [12:10] doing better. Revenue kept growing [12:11] faster than expected. And so, the bears [12:13] are left there saying, "Ah, I don't I [12:15] don't know what I can say. I mean, [12:17] Google searches is going crazy. The [12:18] revenue is growing. The queries are [12:20] growing. Everything seems seems really [12:23] good." But they've been waiting for [12:25] their moment. And the moment is when [12:27] Google search shows any signs of [12:29] weakness, anything at all. And the sign [12:32] of weakness that it will show eventually [12:33] is deceleration. Deceleration has to [12:36] happen at some point. So we knew this [12:38] moment was coming. We knew that Google [12:40] search would eventually show some sign [12:42] of weakness and it's finally arrived [12:44] with this week's report. The [12:46] deceleration from 16% to 12% is rather [12:50] dramatic. So, this gave an entry point [12:52] for the Bears to make their case for [12:53] imaginations to run wild. And on [12:56] schedule, we have people like Gene [12:57] Monster going on to CNBC explaining how [13:00] this is a big problem for Google. Listen [13:02] to him make this argument. But it is [13:04] does kind of set up for something's not [13:07] quite working right. They gave excuses. [13:09] You talked about them. Uh what matters [13:11] is what they said about the December [13:13] quarter and they said that it's going to [13:15] be a slower growth rate. on the call. [13:16] Strong growth in AI mode queries [13:18] affected search revenue. So on top of [13:21] them saying that FX was an impact second [13:23] quarter to third quarter and fourth [13:24] quarter would be greater. They're saying [13:25] that AI search queries had an impact on [13:28] search revenue. So how do you [13:30] >> So that's not good. [13:31] >> Yeah, exactly. That's their core [13:33] business. [13:34] >> It seems as though Gene has turned [13:35] bearish on Google as the stock drops, [13:37] which is not a huge surprise, but some [13:39] of what he says has merit. It is the [13:42] truth today that there are more ways to [13:44] find information than just Google [13:45] search. That is it's completely apparent [13:48] to anyone that you can go on muse, you [13:50] can go on chatbt, you can go on [13:51] anthropic and now they don't just work [13:53] as general information or wikipedias. [13:57] They work as on the ground searches. You [13:59] can search for basically anything. And [14:01] the fact that there's all these [14:02] different ways to find information, all [14:04] these different users using all these [14:05] different platforms has given fresh [14:07] concerns for Google. So here we are with [14:09] the first real big test for Google. The [14:12] stock dropping 12% and investors having [14:14] the renewed fear. Now when Gene Monster [14:17] goes on there and he says Google gave [14:20] excuses, [14:21] that's a little bit of a a brushing off [14:23] something that I think is important. He [14:25] says excuses. When a company comes out [14:28] and they say, "Hey, this revenue line [14:30] went down and we have specific [14:32] explanations of why it went down." for [14:34] an analyst to just come on to TV and [14:36] say, "Ah, those are just excuses." He [14:38] didn't even address them. He didn't [14:40] bring up what the excuses were. He just [14:42] said they're excuses, and the real [14:44] reason it's dropping is because of bots [14:46] or agents. But Gene, isn't it worth [14:48] actually looking at those excuses the [14:50] management gave their explanations of [14:52] why the stock dropped so much? Isn't [14:54] that relevant to the conversation? Isn't [14:56] it worth mentioning here? because I [14:58] looked at what management actually said [15:00] and it seemed highly relevant and highly [15:02] explanatory of why Google search [15:05] decelerated at the rate that it did. On [15:07] the earnings call, we had management [15:09] address this issue specifically. They [15:11] said search grew 12% year-over-year. [15:14] Now, the previous quarter was 16%. When [15:16] you look at the change from growth rate [15:18] from Q2 to Q3, there were a few drivers [15:21] here. First, there was FX, foreign [15:24] exchange. It was the single largest [15:26] driver of search deceleration relative [15:28] to Q2. So, right off the bat, we know [15:30] the biggest driver of deceleration, the [15:32] biggest single factor was foreign [15:34] exchange, meaning nothing intrinsic to [15:37] the business at all. Google search [15:39] decelerated primarily because of [15:41] fluctuations in exchange rates. And then [15:43] they outline a few other reasons it [15:45] decelerated sharply. It was a single [15:47] largest driver search deceleration [15:48] relative to Q2. Then there were vertical [15:51] specific dynamics in retail. Some of our [15:54] Asia-Pacific advertisers were impacted [15:56] by the EU eliminating a day minimus [15:58] exemption. So we have another exemption, [16:02] something that is environmental. It [16:04] doesn't have anything to do with [16:05] Google's core business or competitive [16:07] dynamics. In media and entertainment, [16:10] spend normalized after an unreasonably [16:13] strong Q2 driven by the FIFA World Cup. [16:17] So you're comparing this quarter to a [16:19] quarter where we had the biggest global [16:21] event in four years. They said [16:23] unreasonably high advertising spend for [16:26] the World Cup. Again, this is nothing [16:28] intrinsic to Google's business. These [16:30] aren't factors that that you should [16:32] outline as problems of competitive [16:34] nature. These are things that are are [16:36] just happening in the world that happen [16:38] to impact their business. They say more [16:40] advertising budgets allocated in June [16:42] than actually in July. Also to the next [16:45] part of your question, it's worth noting [16:47] that strong growth in AI mode queries [16:49] had an impact because the lower [16:51] monetization we're seeing in AI mode. [16:54] This is where investors are becoming [16:55] concerned. They're saying that we're [16:57] growing in AI mode and that monetizes at [17:00] a lower rate than our traditional [17:01] search. So that is the whole [17:03] conversation of cannibalization. But he [17:06] gives more context here as well. We feel [17:08] very good about the trajectory here. Our [17:10] ad experiments have shown promising [17:12] results and we're now scaling ads within [17:14] both AI overviews and AI modes to more [17:17] users and more queries including as [17:19] mentioned international markets [17:21] multi-turn ads in the US. So there we [17:24] have the excuses from management the [17:26] things that they didn't think was worth [17:27] telling you on the television that the [17:29] primary reason that Google searched [17:31] decelerated was because of foreign [17:32] exchange. On top of that, we had the [17:34] comparisons to the World Cup, which [17:36] obviously is super hard to compete with [17:38] for an advertising business. And then [17:40] they mentioned the last reason there, [17:41] which is the one that everybody's going [17:43] to focus on, which is that AI is kind of [17:46] cannibalizing some of their business. [17:48] And that part is true. This is where we [17:50] actually get into some true bare points. [17:52] What's happening right now is the [17:54] traditional search was a highly [17:56] optimized money-making machine. So the [17:58] the blue links just searching through [18:00] and looking at businesses that has [18:02] already gone through a decade of [18:04] optimization. So it's a very [18:06] streamlined, highly optimized for [18:08] profits product. And Google knows that [18:10] they can't stay on that. So they're [18:12] willing to cannibalize that business, [18:14] move everybody over to AI overviews and [18:16] conversational context and search and [18:19] integrate advertising into that. But [18:21] that business that they're migrating [18:23] people over to is not as streamlined or [18:25] optimized. So, it's not quite making the [18:28] amount of money that the previous [18:29] business was. So, the more people that [18:31] shift over to it, the less they're [18:33] making per click or or whatever way that [18:35] they measure it. When I look at that, I [18:37] also don't think it's as much of a [18:39] problem as people think because Google's [18:41] early in their trajectory of monetizing [18:44] contextual AI search. And they'll get [18:46] much better at that over time, just like [18:48] they did traditional search. And there's [18:51] lots of indicators that they give that [18:52] they believe the AI search over time [18:55] will be better at monetization overall [18:57] than the previous one. So if you look at [19:00] this, it's a transition period. Sure, [19:02] there is cannibalization that is [19:04] intentional that will shift people over [19:07] from one historical product to a new [19:08] one. But the road map is very clear. [19:11] There's already monetization happening. [19:13] They're rolling it out to more people. [19:15] And so I see a couple things working [19:17] against Google today. And that is going [19:18] to be the deceleration, the continued [19:20] narrative of search being eaten by AI. [19:23] We're not going to get past that [19:25] narrative. It's just going to exist [19:27] until search continues to accelerate [19:29] again. So, we could have a couple [19:30] quarters, maybe a year of continued pain [19:33] in Google stock. And this is in [19:36] combination with a couple other factors [19:37] compounding it. The reason the stock is [19:39] down so much this quarter is because [19:41] Google not only missed on their [19:42] operating metrics, they also have free [19:45] cash flow flipping negative and they [19:46] admitted that there's some degree of [19:48] cannibalization. When you have that type [19:50] of storyline with a already very very [19:53] fearful group of investors, that causes [19:55] massive sell-offs. So there are bare [19:57] arguments to be made. Some investors [19:59] really are concerned that Google search [20:01] will continue to decelerate and [20:03] ultimately get cannibalized and start to [20:05] decline into a struggling business. But [20:07] I don't see that happening and I don't [20:09] really see evidence of that yet. What I [20:11] see is a slight deceleration for very [20:13] valid reasons and them working on [20:15] monetizing a new way of information [20:17] gathering which everybody will both [20:20] chatbt muse all of them are going to [20:22] monetize new ways of information. And [20:25] when we look at this it also masks some [20:26] good things going on with Google. For [20:28] example, I don't see as much attention [20:30] paid to the fact that Google cloud grew [20:32] by 100% year-over-year. In fact, 103%. [20:36] Insane growth. Google Cloud did $30 [20:38] billion in the last quarter alone. And [20:41] the margins are still holding up. So, [20:43] this isn't a situation where we're [20:45] sacrificing margins for growth. The [20:47] cloud margins were 36%. Excellent [20:50] margins for an incredibly fast growing [20:51] business. Some investors were concerned [20:53] that the cloud backlog, although it [20:55] continued to gain, its rate of growth [20:57] decelerated quarter over quarter. And it [20:59] is true it went up only from 513 billion [21:03] to 560 billion. But this is where I [21:06] think investors get this wrong as well. [21:08] You don't want the backlog to just grow [21:09] forever because a backlog is promised [21:12] revenue. What you really want is revenue [21:14] growth. And you want them to consume [21:16] their backlog at an increased rate, [21:19] which is exactly what Google's doing. [21:21] The reason that this backlog isn't [21:22] growing faster is because Google Cloud's [21:24] growing 100% year-over-year. It's [21:27] consuming the backlog. You want a [21:28] healthy backlog, but you also want them [21:30] to grow their revenue and consume that [21:32] backlog faster. That's exactly what [21:34] Google's doing. So, I don't see this as [21:36] a problem at all. I would want the [21:38] backlog to stay around this range. I [21:40] don't want it growing to a trillion [21:41] dollars. I'd rather have Google Cloud [21:44] continuing to grow fast. When we pair up [21:46] YouTube and subscriptions, which a large [21:48] part of their subscriptions is from [21:50] YouTube, there's some other stuff [21:51] included as well, but a huge part of it [21:53] is YouTube Premium. That's growing [21:55] around 10% year-over-year. So this is [21:57] another part that wasn't super [21:59] impressive by Google. YouTube [22:01] decelerated as well. Now is that a [22:03] problem? Not really. We have YouTube [22:05] dominating the TV. Everybody's seen the [22:07] metrics that engagement is crazy on [22:09] YouTube. People are watching YouTube on [22:11] the television more than they are [22:13] Netflix by a lot. So YouTube has [22:15] basically won the TV so far. They're [22:17] also winning in subscriptions. This is a [22:20] a massive crown jewel of a business. I [22:22] really think that YouTube is one of the [22:24] best businesses in the world. Then you [22:25] have Google owning the Gemini models [22:27] which Sundar has pushed out for a long [22:28] period of time but we finally have Argon [22:31] their new models which are very [22:32] impressive. We have Whimo which is doing [22:34] exceptional. We have Google now going to [22:37] sell their own chips. That's a great [22:38] business that they can get into. So [22:40] there's a lot of ways for them to [22:41] continue growing. In fact, one of the [22:43] things that I noticed on this earnings [22:45] call was that for the first time they [22:47] had the person over cloud on the call. [22:50] Google is wanting to transition from [22:51] being known primarily as a search [22:53] business to being known as a search [22:56] information business plus cloud. They're [22:58] making cloud a bigger part of the story [23:01] of the narrative. It's where they [23:02] believe the future is. Cloud over time [23:05] is eclipsing Google searches revenue. [23:07] It's going to be the main driver of [23:08] growth going forward. So my prediction [23:10] is we'll continue to have this debate [23:12] over the next couple of quarters. Is AI [23:14] eroding search? How do the search [23:16] numbers look like? Is it still [23:17] decelerating? and that's going to cause [23:19] pressure on Google stock. So, I don't [23:21] necessarily believe you need to rush out [23:23] and buy Google stock today. At least I [23:25] don't see a big recovery or a big [23:27] rebound anytime soon. I think that will [23:29] take time. But Google's still a stock [23:31] that I'm going to continue to own. I [23:32] don't plan on selling any of it. I [23:34] already have a massive position and I'll [23:36] continue to hang on to it because I [23:37] think that Google is still just one of [23:39] the best companies in the world and now [23:41] it's trading at a relatively low [23:42] valuation based on any type of [23:44] short-term metrics. In the long term, I [23:46] see them winning in cloud. I see YouTube [23:48] continuing to grow. I see Whimo taking [23:50] more market share, Gemini still [23:52] competing as a flagship model. I see a [23:55] lot of good things for this company and [23:56] I also see search transitioning to AI [23:59] monetization over time. I think Google [24:01] still remains one of the best options in [24:03] the market. Now, we also had more [24:05] companies report their earnings. [24:06] Microsoft also reported Mastercard and [24:09] Door Dash with an announcement that they [24:11] want to buy Instacart. So, we'll be [24:13] looking at those. I want to start off [24:15] with the boring one, Mastercard. It's [24:17] always the boring companies, the ones [24:19] that really don't get as much media [24:20] attention that really crush it in the [24:22] market. They're the ones that go up a [24:24] ton. We have Mastercard here, my most [24:26] boring holding that's now my largest [24:29] position, $212,000 position, $65,000 in [24:33] the green, and the stock is doing [24:35] fantastic. In fact, Mastercard is now at [24:37] an all-time high. It's up 13% this this [24:41] year. In the past 5 years, it's up 91% [24:44] now right to an all-time high today. So, [24:47] they crushed their earnings like usual. [24:49] Mastercard has done fantastic. There's [24:52] not too much to say here other than the [24:53] fact that it's just more business as [24:56] usual. And the bare case really hasn't [24:58] come to fruition. The bare case is that [25:00] there's picks in Brazil or there's all [25:02] these different payment systems from [25:04] different governments and investors have [25:06] convinced themselves that those are [25:07] going to erase credit cards and they [25:09] just aren't. Mastercard continues to [25:11] grow along with Visa and American [25:13] Express. These companies are doing [25:15] fantastic. Microsoft also reported this [25:17] one was up initially a little bit. Now [25:19] it's down 1.2% and this is partially [25:21] caused by Google. Honestly, Google's [25:23] dragging down a lot of the market today. [25:25] So, a part of the reason that the S&P [25:27] 500 and NASDAQ is down is simply because [25:29] of Google's report. But I look at [25:31] Microsoft and this is another strong [25:33] report. Microsoft grew revenue 19%, [25:36] operating income up 21%, operating [25:38] margin increased slightly to 50%. These [25:41] are great numbers for Microsoft. [25:43] Microsoft cloud revenue reached $63 [25:46] billion, up 30% year-over-year, 31% on a [25:49] constant currency. So, they're still [25:51] growing their cloud above 30%, which is [25:53] incredible at their size. One important [25:55] thing about Microsoft is that they're [25:57] expected to be free cash flow positive [25:59] throughout fiscal 2027. So basically [26:02] throughout the year they're remaining [26:03] free cash flow positive. They're funding [26:05] their capex buildout with their own [26:06] money and capex came in less than [26:09] expected. So Microsoft is being a bit [26:11] more conservative with their capex [26:12] expenditures. Investors typically like [26:14] that. Now we also have Door Dash, a [26:16] smaller position of mine that also [26:18] reported earnings. And I know a lot of [26:20] you, in fact all of you are very [26:21] responsible. You would never order Door [26:23] Dash. You'd never waste money on those [26:25] fees. Well, a lot of people do. Door [26:27] Dash is incredibly popular and outside [26:30] of the bubble of investors that are very [26:32] frugal, many people order everything. [26:34] They order stuff from restaurants, they [26:36] order drinks, they order even stuff from [26:39] the grocery store. It's a very big [26:41] business. In fact, their order volume [26:43] grew by 28%. Now, part of this is [26:46] acquisition growth, but it's now at 993 [26:49] million orders in just the past quarter. [26:51] This is not the trailing 12 months. This [26:53] is in a single 90-day period. So, it's [26:56] insanely popular. Door Dash continues to [26:58] grow at a high rate of speed. And we [27:00] have the company now announcing their [27:02] official intention to buy Instacart. [27:05] Instacart's the company that's more [27:07] focused on retailers. So, if you're [27:09] ordering from like Target or you're [27:11] ordering from Costco, Instacart's the [27:14] network that typically will handle those [27:16] type of deliveries. And this is a clear [27:18] move by Door Dash to get into the retail [27:20] category. Right now, Door Dash is the [27:23] biggest in the United States when it [27:24] comes to delivering food. So, they have [27:26] restaurants down. They're very strong in [27:28] restaurants. And they've been trying to [27:30] expand to say, "Hey, we're not just in [27:32] restaurants. We're also just in anything [27:33] local. We want all the retailers on [27:36] board." So, our customers have a ton [27:38] more options when they're when they [27:40] shop. The idea is that when they open up [27:41] Door Dash, they can just shop anywhere [27:43] locally around them. And so, this would [27:45] be a massive acquisition. They'd be [27:48] paying around $17 billion for it. They'd [27:50] be paying a pretty good premium for [27:52] Instacart, but that's the price it costs [27:54] to gain market share. You either buy it [27:56] by acquisition like Door Dash is trying [27:58] to do, or you pay a premium by acquiring [28:01] customers and paying for advertising and [28:03] launching big campaigns, running an [28:05] unprofitable business for a long period [28:06] of time till you gain the market share. [28:08] This is just a faster way to do it. And [28:11] right now, I agree with the Door Dash [28:13] shareholder that this is a positive [28:15] thing. Now, the stock is up 4% because [28:17] investors would be excited about this, [28:19] but it's still a big unknown. It's very [28:21] unknown whether or not this will pass [28:22] regulators because Door Dash is already [28:25] massive. Buying Instacart would make [28:27] them even bigger. And it really comes [28:28] down to how you define a market. If the [28:30] market is simply just delivery services [28:33] like Door Dash, Instacart, and Uber, [28:35] then Door Dash is obviously too big to [28:37] buy Instacart. But if you start saying [28:39] that Amazon deliveries part of the [28:41] market, that Walmart delivers part of [28:43] the market, then it becomes more more [28:45] easy to justify that Door Dash should be [28:47] able to buy Instacart. Those are the [28:49] arguments that all the lawyers are going [28:50] to make to try to push this deal [28:52] through. But I hope it goes through as a [28:54] Door Dash investor. I think that this [28:56] scale is necessary and even though it [28:58] comes at an expensive price, this would [29:00] give them an enduring advantage and [29:02] growth path for many years to come. Now, [29:03] that's going to be it for this episode. [29:05] Hope you enjoyed. See you in the next [29:06] one.