Alphabet: is search really at risk?
The bear case says AI answers replace search and the ad business erodes. The numbers so far say the opposite: search revenue keeps growing and the AI features are increasing query volume. I think the fear is worth more than the risk, which makes the stock cheap.
Sample research report used to test the layout. Delete before launch.
Thesis
A business growing double digits at a below-market multiple because of a risk that has not shown up in a single quarter of results. I would rather own a feared business whose numbers keep improving than a loved one whose numbers do not.
Catalysts
- Search revenue growth holding above ten percent through the year.
- Cloud profitability, which crossed into meaningful territory last year and keeps improving.
- Any resolution of the regulatory cases that removes the worst outcomes.
Risks
- The regulatory cases: the remedies could be structural.
- A genuine shift in user behavior that shows up as slowing query growth.
What would prove me wrong
Two quarters of search revenue growth below five percent. That would mean the substitution is real and the multiple is right.
Position
Full position. The chart is not the reason; the multiple is.