Alphabet (GOOGL): Diversified Growth and AI Powerhouse

Let's go deep on alphabet in our tech spotlight. Joining me right now, Jeff Nielsen, Chief Digital Officer, Info-tech research Group. I'm so glad you're with us. Where does alphabet really fit in to the big picture? What's it standing in the market at this point in your opinion? Well, you know, alphabet standing and thank you for having me. It's it's you know, it's something that's a little bit lower right now than I think you would have seen a few weeks ago. But to me, it's a powerhouse long term stock. It's got an amazing long term record. And frankly it's built for any weather. So even though the stock has pulled back, I really don't think the core fundamentals of the business have and I feel really excited about it. Well, that is exciting. I mean, we know that we talk about Google's Gemini versus anthropic. And you know, there was a lot of worry about Google search whether or not it would stay afloat with AI. How is it holding its own that makes you not worried? Sure. So let's dig into each of those individually. So Gemini right now 3.8 flash is the next version to watch. And this to me clearly is two things. It's an enterprise play and it's a catch up play, right. It's trying to catch up with anthropic, which has gotten way out ahead in terms of what it's doing for coding, for workflow. And I'm okay with that. I think not only is Google in the mix here, but because they've got the infrastructure, because they've got the scale, even being at pace with some of these firms is going to end up putting them way ahead because of their core business. And let's talk about search for a minute, because everybody said that AI was going to eat searches, lunch. And if you look at the last results, search is actually up from a revenue perspective, 17%. This is huge. Somehow we're seeing that AI is actually helping search versus hurting it. So I think that the the downside risk here is way overblown. Okay. So if someone were to play some devil's advocate, when you think about the competitive landscape, who would you say are some of the biggest competitors? I know there's also a lot of collaborations going on. So I think that the nice thing about Google is that they sort of have, you know, a finger in every pie that the rest of the big seven is in. Right? So, you know, I think they do ads, frankly, better than meta. I think they do video better than Netflix does. You know, we just talked about what's going on with Tesla. They've got Waymo that they're working on there and they're competing against the OpenAI's and the anthropic's of the world. I really like this diversification because, look, I'll be honest, I don't know how the market's going to shake out with all the AI stocks and all the rapid growth we've seen in the next 3 to 6 months. Correction. Absolutely. But to me, it's just an all weather stock, right. We see every engine still firing pretty nicely. And no matter what shakes out in any one of those areas, I just see the risk as being lower than any of those other individuals. What are your thoughts on the CapEx spend situation overall in the last earnings season two, what did that tell you about the AI spending CapEx? So I think that CapEx right now, this is the entire debate around the valuation of the Google stock and whether you like it or not. I think that this is just the cost of doing business for big tech, right? You've got to be putting up these big dollars or you're going to risk being left behind. And I don't think Google is being left behind at all. Now, the reason I really like this is, look, if AI grows and it expands the way we think it is, Google is going to be super well positioned to be right in there and see exponential growth. But if the bubble ends up bursting, I still think that Google's got the cash cows in all their other businesses to outlast other casualties in this space. Okay. And that exactly is what the cash cow, just the whole thing cash cows is. We've got search, by the way, one of the areas that we haven't talked about yet is I love their cloud business. Their cloud business is growing like crazy. I think it's graduated, frankly, from a growth story to a profit story. We've seen their revenue in the past year is up 82%. Their operating income is more than tripled. So this is an area that people aren't talking about nearly enough. It's competing with AWS and the best of them. And again, we've seen that YouTube is continuing to be a huge driver of their business. So there's just a number of different areas here that are really, really promising. Okay, good. I'm glad I asked the question. That being said, you said it's something different and maybe more reliable. I don't know if that's the right word, but it's built for any weather is what you said compared to the likes of something like Nvidia. You said it is higher risk. Why is it Nvidia maybe higher risk higher reward. You wrote. Yeah, I really think that if you're looking to really see how much you could possibly make, if everything goes perfectly and Nvidia is the stock, we've seen the absolutely explosive growth. And to me the risk that comes with it right. We've seen you know you've probably seen these diagrams that people call, quote, circular financing, where Nvidia is now paying its customers to pre-buy some of its equipment. And, you know, as long as the market holds, that's a really great way to kind of turbocharge their revenues here. But if we start to see that demand soften, if the chips are not going to be as valuable in the future as they're saying they are, basically, we're also turbocharging the downside, right? That is a way to see the Nvidia stock actually collapse at a much faster rate than any of the other big seven. And to me, that risk for Google is just it has the smallest downside risk of any of these magnificent seven stocks. So if AI grows, this could be such a great launching pad overall, you said right. I mean, if we see a real burst in, AI really helps Google in the long run. That's how you seem to be phrasing it. I think that's exactly right. If AI takes off and it transforms, you know, the economy in our lives, the way that, you know, so many of these frontier labs are saying, I think Google is going to be super well positioned. As we've seen, it's helping cloud. It's helping what we've got across their ad business. It's going to help things like Waymo, it's going to help Gemini, and they're going to be in on this. They've got a share of the pie. And by the way, those massive capital expenditures, we're seeing some of the investment returns from the stake they've got in anthropic, for example. So they're going to be way out ahead. So that to me is kind of the default position a lot of people are taking right now. But as I said, good or bad, to me, this is the stock that you need to be looking at, right? Okay. So obviously search cloud, YouTube and more has obviously made this the cash cow here. And as AI takes off, it's certainly a nice platform for alphabet. Google. The downside, one thing that I've been thinking about is tech overall and won the jobs report showed fewer tech jobs, right? As AI is moving into the manufacturing space, more manufacturing, fewer tech jobs. We did see that. And then I think about the rate environment. And if rates were to go up, what does it mean for tech names like Google? Let me tackle those one at a time. So for me, the job growth slowing in tech is bad. If you're, you know, if you're a dev, if you're a coder, I think that's bad news as an individual level, at a stock level, at a company level, I don't think that's bad news at all. Right. Google has one of the most profitable businesses in history. If you look at the revenue generated, at the returns generated per employee, it's through the roof. And if they think they can do that even more efficiently, more power to them. I'm not losing a lot of sleep over that. From an investment perspective. I feel bad, you know, if there's layoffs coming now, if we're talking about the rate environment, that's a completely separate question. I think that Google, you know, like everybody else, is subject to higher rates. I don't think that there's a way around that. I think that the entire economy is going to see that is Google's impact from rates going to be outsized? No, I think that it's frankly going to be a little bit lower than what we see with a number of other stocks, just because they're so diversified, so much of the spending that they're getting, you know, as I said in their ad businesses, in what's going on with cloud, those are those are all terrain businesses, right? Even if we start to see a pullback in some different areas in consumer spending, those are going to be some of the lasts that are hit. Yeah that's actually well said. So we understand it better now. So if the rate environment were to move higher right. And that seems to be the trend of late. Maybe Google will even be better positioned than some of its peers because of its diversification. At the same time, I think about operating margin and that's been growing. So they've been doing things, I guess, more efficiently. You know, they have. And I think that's partly the AI play that's tied to what we're seeing around headcount. And look, this is a mature business. It's well run. They know what they're doing and they have so many different lines of business that they're continuously optimizing every year. They're finding ways to squeeze more out of this, but they're also growing the pie, right? This isn't having stagnant revenues and squeezing more out of it. It's figuring out how you can grow and more efficient. And that just sort of management and organizational discipline. It's extremely rare and it's extremely valuable. And so that comes back to something I said off the top. This has been an exceptional long term play. It's a company that's outperformed again and again. And to me, that kind of track record just speaks to why I'm so excited about it right now. Jeff, it's great to see you. Jeff Nielsen, thank