Comment by zerobees
4 hours ago
I am invested in some of the companies that are downstream of the capital expenditures of Big Tech (e.g., COHR), so I have nothing to complain about.
I am really struggling to see what's the investment thesis behind Google valuation increasing 2x in response to AI, though. Assuming no magical AGI singularity, by the end of the day, they're still selling the same services, but the services have gotten more expensive for them to provide. Everyone was already using Google Search, but now, provisioning AI summaries on top of requires more compute. Everyone was already using Google Docs and Meet, but now, AI features cost Google more. Etc, etc.
The only place where they stand to make money is selling AI compute to enterprises. But with the current supply-chain challenges, the margins there are probably getting thinner.
`I am really struggling to see what's the investment thesis behind Google valuation increasing 2x in response to AI`
Google is basically Nvdia (TPUs), Tesla (Waymo Self-Driving), Hyperscaler, Netflix (YouTube) and a massive VC (Anthropic, Databricks, SpaceX, etc.) all rolled into one.
Their valuation isn't really a 2x'ing so much as a reversion from halving.
It's frequently said that vonglomerates usually carry through as their valuation, the multiplier of the lowest holding. If that's the case, Alphabet is worth more broken up. Similarly that makes their current valuation (and nay any valuation) theoretically too low.
>Assuming no magical AGI singularity, by the end of the day, they're still selling the same services, but the services have gotten more expensive for them to provide.
Well, they're hoping to sell new services on expensive $200/month subscriptions.
The hope is that agents have more value than traditional software, because they do the work for you instead of just enabling you to do the work.
The investment thesis is a torrent of cash arriving to index funds and retirement target date funds has to go somewhere.
Google has a compelling story for many AI scenarios: it has lots of outs. It's the only frontier lab for which that's true. A massive bubble bursting wouldn't be existential for Google; it would be quite painful, but survivable, and even offers some potential upside (picking up assets and researchers from the wrecked, mangled corpses of other frontier labs on the cheap).
Google is a good bet because if AI continues to boom, they're in a good position (frontier lab, vertically integrated). If the bubble bursts and the frontier labs fail, they might do even better.
I know several non tech companies that use Gemini and NotebookLM heavily (banks, insurance, consulting).
Google is a money printing machine, and their Q1 revenue and profit were up significantly vs last year.
Same for META
The market runs on memes, hype and fraud. Fundamentals haven’t mattered for a long time.
You're half right.
The market sets prices, and they are set based on multiple things. One of those is fundamentals. Consider the value of assets, whether tangible or intellectual property, human resources, binding contracts, etc. that add up to reasonable revenue forecasts and so forth.
And the other aspect of prices is based on conjecture, speculation, meme-joiners, believing hype, and in some cases, fraud.
The secret sauce is always going to be the one who can figure out, between the two factors going into price, what's right, and when.
BUT... just saying that all stock market pricing is based on unreliable factors? That's not a useful, actionable statement. You can certainly stay out of investing in that market, but is that going to be your best course of action?
I guess Google’s Q1 earnings of $62 billion were just hype.
And a market cap that exceeded 4.5 trillion dollars. I think we can all agree that Google is a legit business. But they were doing fine in 2023 too and had solid y/y revenue growth for much of their history. Their market cap tripled since 2023 and doubled since mid-2025. So, it's clearly more than "they continue to be a profitable company that grows around 15% y/y in real terms".
Yes, earnings are essentially hype/BS.
Focus on cash/cashflow.
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