Comment by JonathanBeuys
6 days ago
Is cloud usage really high?
Look at all the stuff people do. Almost none of it is automated via software. Look at people on construcion sites, cashiers, cleaning stuff, cab drivers ... all of it is done manually. I am writing this manually, even though I would prefer to just say it while doing the dishes. But there is no good voice interface for browsers yet. And hey, why do I even do the dishes?
I would say we haven't even started automating the world via software.
10 years of 30% growth just means we will spend 14x more on software in 10 years than we do now. Considering we have not even really started using software for automating work, I would be surprised if we stay below that.
You may be right, especially with the growth of applications of software. Personally I'd rather bet on slower revenue growth than the current 30%. Not necessarily much slower, but even 25% yearly growth over 10 years would be a big difference in the end compared to 30%. My thinking is that usage of cloud compute can grow greatly, but with revenues growth lagging behind, because of falling costs of compute (more powerful/efficient CPUs etc), economies of scale, and competition putting pressure on prices. For example AWS operating margin is 34% currently, I expect that to fall as the market matures (but Google's cloud margins are much lower right now).
Ok, let's say 25% growth over 10 years. That is a factor of 9.
9*$50B = $450B yearly revenue.
What could be the margin Alphabet makes from that? Last quarter, Alphabet had $100B revenue and $35B net income. So 35% margin.
$450Bx0.35 = $158B
What is $158B in annual profit worth? Currently Alphabet's p/e is about 30. If we take that, it would be $158Bx30 = $4740B. So around $5T.
If we are heading towards the creation of $5T in value via cloud revenue, investing $100B per year to build it seems not particularly high to me.