Google Hits Record After Chrome Antitrust Ruling

Key Concepts

• Regulatory intervention in Big Tech
• EBITDA growth
• Price targets and stock valuation
• Competition in search (Google vs. Perplexity, OpenAI, Gemini)
• AI agents and multiple AI systems
• Google's dominance and consumer behavior
• Default search placement deals (Google & Apple)
• The "playbook" of Big Tech investigations

I. Reaction to the Court Ruling and Regulatory Concerns

• The speaker notes that while Alphabet's stock is up 8.6% (a record high), this is only the biggest jump since the first week of April.
• Despite many colleagues raising price targets, the speaker's firm has not, maintaining their view that regulatory intervention in these stocks is generally unfounded.
• Drawing a parallel to Microsoft's past, the speaker believes that tech companies and regulators will always find a middle ground.
• The speaker states, "in any situation you buy these stocks on this fear," referencing a historical pattern where regulatory concerns create buying opportunities. This has worked for Microsoft and now Google.
• The speaker emphasizes that this is the "game we're playing in" and that the "rulebook" hasn't changed.
• The speaker highlights Alphabet's EBITDA growth in the "mid to high teens multiple" and the stock trading at 14 times EBITDA (previously 12 times).
• The speaker says, "the inherent value is higher for what they're doing than what the street is in banning."

II. Competition and Google's Position

• The speaker acknowledges the changing landscape of information search, noting that consumers are starting searches in platforms like Perplexity and OpenAI before going to Google.
• The speaker views this competition as positive for Google, pushing them to improve.
• The speaker uses the analogy of Scottie Scheffler needing competition to improve his golf game.
• The speaker believes Google has "more horsepower underneath the hood" but hasn't effectively showcased its capabilities, particularly with Gemini.
• The speaker agrees with the judge's ruling that there is more competition now than a few years ago.

III. Google's Deal with Apple and Consumer Behavior

• The speaker acknowledges the significance of Google paying Apple $20 billion a year to be the default search placement.
• Even if Google had to divest its browser or lost the default placement deal, the speaker believes consumers would still gravitate back to Google due to its superior information.
• The speaker states, "You can't complete the loop without Google," citing examples like maps, business hours, and other essential information.
• The speaker emphasizes that consumer behavior will "de facto" favor the platform with the best information, which is currently Google for many users.

IV. AI Agents and the Future of Search

• The speaker illustrates Gemini's capabilities with an example of identifying a specific Toyota 4Runner model and its availability at dealerships, a task where Gemini outperforms Perplexity or ChatGPT.
• The speaker envisions a future with "multiple agents" and "multiple AI systems" working in concert.
• The speaker's survey work indicates that users are already embracing multiple AI tools.

V. Alphabet's Growth and Investment Strategy

• The speaker acknowledges that Alphabet's stock is up 22% and outperforming Amazon.
• The speaker admits to being "too negative" on the court ruling and has seen a "nice snapback."
• The speaker notes that the stock is now reflecting much of the good news, aligning with their price target.
• The speaker reiterates the "playbook" of the last two decades: Big Tech investigations ultimately lead to buying opportunities.
• The speaker concludes that governments try to protect consumers, and Big Tech companies ultimately find a way to "have peace" and continue innovating, especially in the AI world.

VI. Conclusion

The speaker maintains a bullish outlook on Alphabet, despite regulatory concerns and increasing competition. They believe Google's dominance, driven by superior information and consumer behavior, will persist. The speaker views regulatory investigations as buying opportunities, citing a historical pattern. The future of search will involve multiple AI agents working together, and Google is well-positioned to remain a key player.