Rethinking my Google short ahead of earnings... decided to go Long instead

Rethinking my Google short ahead of earnings… decided to go Long instead

By @Bonds 21.07.2025

Alphabet currently trades at ~$185, valuing the company at $2.26T. Amid AI disruptions from challengers like OpenAI's SearchGPT and Perplexity, the stock has shown resilience, holding above key supports like the $173 200-day SMA despite YTD dips.

Fears of AI eroding Search, e.g., Gemini Overviews potentially cutting ad clicks by 10-20%, have pressured Google’s share price, with events like Apple's May AI browser rumors causing dips.

Yet, these risks appear to be largely digested: Forward P/E ~19x (lowest in Magnificent Seven, 20% below S&P 500's 21.7x), and Search held strong in Q1 with no material erosion. Alphabet's defensive AI integrations appear to be working as well (i.e., 1.5B AI Overviews users; 480T monthly tokens processed, +50x YoY). Additionally, its Cloud market share rose to 12% on AI demand.

Using peer multiples as comp, you can make the argument that Alphabet is undervalued base on sum-of-the-parts:

YouTube: $57B est. revenue; at 12x EV/Revenue (with Netflix’s ~13.8x as comp); $684B valuation.

Google Cloud: $56B est. revenue; at 12x EV/Revenue (Snowflake ~18x, AWS ~10x); $672B valuation.

Waymo: $0.3B est. revenue; Recent $45B funding + growth (Uber AV proxy ~26x EBITDA); $50B valuation.

AI Segment (TPUs/Gemini/DeepMind): $15B est. emerging revenue; at 20x EV/Revenue (Nvidia ~20x, AI median ~30x); $300B valuation.

Other Assets (Network, Android, Hardware): $32B est. revenue; at 6x EV/Revenue (mature comps); $192B valuation.

Search: $220B est. revenue; at 18x EV/EBITDA (Microsoft comp 24x, discounted for AI risks); roughly $1,500B valuation.

In total, including Alphabet’s Net Cash of $95B, the sum-of-the-parts value equates to a $3.5T market cap, or ~$287 per share (+55% upside from $185). This exceeds the current $2.26T market cap and analyst consensus targets ($202-$205 average, highs to $250).

Alphabet aggressively prioritizing AI (e.g., $75B 2025 capex; $32B Wiz acquisition) may cannibalize Search short-term but unlocks vast AI markets.

AI’s TAM projected at $244B in 2025, exploding to $800B-$1.8T by 2030 (vs. digital ads ~$700B market), of which 70% is likely accessible to Alphabet based on its currently available and likely upcoming AI products and services.

New revenue streams from premium Gemini features, enterprise tools, and Autonomous Vehicles (est. $100B+ robotaxi market by 2030) offset some of the cannibalization risks, especially given Alphabet's significant distribution advantage via its entrenched user base (e.g., Gmail, YouTube, Android).

Ahead of earnings, the setup seems asymmetric for a long trade, with downside capped by undervaluation; upside potential from Q2 beats (consensus $93.8B revenue +11%, Cloud +26%) or Gemini breakthroughs driving a post-earnings rally. Alphabet looks overlooked here, with potential for a re-rating if investors were to focus on its AI potential to unlock bigger markets even if it modestly erodes Search.

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_{Disclaimer: The information provided here is for informational and educational purposes only and should not be considered financial, investment, tax, or legal advice. All opinions, analyses, and suggestions are based on publicly available data and general observations, not personalized recommendations. Stock prices, market conditions, and financial outcomes can change rapidly—always verify data independently. Past performance is not indicative of future results, and investing involves risk, including the potential loss of principal.}