GOOGL
📉 Alphabet shares fell 8% after an Apple executive suggested AI could replace traditional search engines and that Apple might integrate competing AI search services.
🤔 The host questions the severity of this threat, highlighting Google’s own advancements with Gemini and suggesting the executive’s comments might be strategic in an ongoing antitrust case.
💰 A valuation analysis suggests Google Cloud ($1T) and YouTube ($0.5T) alone nearly account for the company’s market cap, implying the core search/ads business might be undervalued amidst current pessimism.
@bernardodegarcia:
“Alphabet is falling 8% because, in the trial against Alphabet for monopoly, Apple’s Eddy Cue says that AI will replace search engines like Google, okay? And then Cue also says that he expects to add artificial intelligence services from OpenAI, Perplexity, and Anthropic as options in Safari in the future. But of course, you’re talking about ‘in the future.’ I don’t know if you’ll want to do that now. Bloomberg news does say that for the first time in a long time, searches on Safari have fallen. This obviously means people are searching more on ChatGPT and the rest. Even my own father was telling me during Holy Week, ‘Wow, ChatGPT is a machine, I ask it for this, I ask it for that.’ Dad, I told you a while ago, but okay. So, people like my father are already approaching ChatGPT. That’s a measure, right, that we can take. But I don’t know, I mean, it’s clear we won’t search the same way for the next 10 years as we have for the last 10 years, but to me, it seems particularly similar to the change from searching on a computer to searching on a smartphone. In the end, it’s still a search. And okay, when searching on a smartphone, how Google would manage with Android to stay relevant was complicated for them. Right now, there are several players dominating AI: ChatGPT, Gemini, Grok, and Perplexity. I don’t know if, really… I like ChatGPT less and less, and I like Gemini more and more. Mind you, as I’m saying this, I can’t believe it. If you told me 6 months ago, ‘Bernardo, in 6 months you’ll say you like Gemini more than ChatGPT,’ I wouldn’t believe you, but it’s true. Google Cloud has a run rate of $50 billion. Do these calculations with me. Google Cloud generates capital of $25 billion… $50 billion. If you put a multiple of 20 on this, perhaps logical, perhaps not, perhaps too much, perhaps too little, it doesn’t matter. According to these values, you end up with, well, 1000 billion, which is a trillion. What is Google worth now? What’s Google’s market cap with or without this drop? It’s $1.83 trillion. So, on one hand, you have Cloud representing approximately one trillion. You have YouTube, which represents a substantially higher value than Netflix. Netflix is currently trading at $490, so let’s say YouTube is worth $500 billion. Then you have Chrome, which we talked about potentially being worth $50 billion, according to the CEO of DuckDuckGo. Then, obviously, you have Search, which must be worth something. I don’t know if it will be worth exactly the same as YouTube or not. I mean, in the end, I don’t know. Google is becoming too interesting for me again. And of course, we repeat, these two parts, Cloud and YouTube, are $1.5 trillion right now. This isn’t in 2, 3, 4, or 5 years. Obviously, this will continue to expand, we imagine. So, what’s the rest of Google’s business worth? Well, the market is telling you that right now it’s worth $340 billion. If you take out the $50 billion for Chrome, you’re left with $290 billion. $290 billion for Google Ads, Services. Ah, I don’t know, Jack. I think there’s too much pessimism.”
Watch the exact part of the video where @bernardodegarcia talks about Alphabet here:
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