00:00 Speaker A
Alphabet, the Google parent falling after saying it plans to nearly double its spending this year. The company reporting CAPEX spend in the range of $175 billion to $185 billion as CEO Sundar Pichai says AI investments are driving revenue and growth across the board. Joining me now, John Blackledge, TD Cowen Managing Director and Senior Equity Research Analyst. So, John, what is the difference between a company that announces huge, huge spending plans and the stock rises, and one that announces huge, huge spending plans and the stock falls?
00:54 Speaker B
Yeah, um, Julie, yeah, the the gap there is is expectations. And so like you referenced, um at the midpoint of their CAPEX guide, 180 billion, double last year. We had 100, we had been forecasting 125 billion. Sell side consensus was 115 billion. and I felt like just in our investor conversations leading into earnings, investors were around 130 billion. And so that’s it’s actually, you know, it’s a pretty big gap. And so I think investors today are digesting one this guide on CAPEX and but also with it, um in what you just led with, um this cloud revenue acceleration was massive. So you are seeing the AI demand and investments in cloud, search, uh growth accelerated. Uh and so and and uh see and Sundar also mentioned that, you know, there are capacity constraints still just given the the strong demand at cloud, at search, etc, uh for the strong AI demand. And so, um, you know, they’re going to double CAPEX and um and they also said like even despite doubling uh CAPEX this year, they’re still going to be constrained um entering next year. So that just gives you an idea of just how much um demand, um there is for their AI, uh, you know, AI offerings.
02:37 Speaker A
So it sounds like you think that maybe the selloff is a bit of an opportunity for investors to step in or that it’s sort of misguided.
02:47 Speaker B
For for sure. I mean, yeah, it’s looking down 4 to 5% today and let’s, you know, to be fair, the shares are up 60% over the past year. Sure. So, um, yeah, no, for us, I mean, if you if you look at, um, Alphabet, I mean, they have arguably now the leading um foundation suite models with their Gemini suite of models, which is driving, you know, kind of like I just referenced the the cloud growth and all the opportunities there. And then look, if you look at search, right, their their core business, search growth accelerated um by a couple points, um beat, you know, street estimates. It was broad-based um across verticals, across geos, and they said that AI mode and AI overviews uh drove a record engagement at search, which is pretty historic. Um and and if you if you go back over the last year, I mean, Alphabet’s did done an incredible job, A with its Gemini suite of models, B, incorporating um AI tools like AI mode and AI overviews in into the, you know, kind of broader search umbrella and really kind of stave off that that sentiment that was out there the last couple of years of of chat GPT being a big secular risk to Google search. And so, um, you know, from that perspective, uh, we’re entering the year for Google, their their businesses search and cloud, um are in really good shape. They’re accelerating. So, you know, it it may take a step back today, um but I think uh the story is uh like over the next couple of years, um still still a great story.
