An investor argues Wall Street overestimates Alphabet's AI spending risk.
He cites strong Cloud growth, a low P/E, and a huge backlog.
He plans to keep buying shares despite capex concerns.
What happened
An investor bought more Alphabet shares last Friday and plans to buy more this Friday, arguing the market overstates the AI spending risk. Google Cloud revenue reached $24.77 billion in the June quarter, up 82% year over year, while Search grew 17% and YouTube ads 13%.
Why it matters
The investor views Alphabet as a self-funded AI monopoly, pointing to 35.7% return on equity, 34% operating margin, and a P/E of 15. He notes the Cloud backlog nearly doubled to over $460 billion and sees the recent antitrust ruling as reducing tail risk.
What to watch
The investor flags 2026 capex guidance at $175 billion to $185 billion and negative Q2 free cash flow of $5.86 billion as the main risk. He will keep buying if the stock cooperates, betting on AI demand strength.
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The investor's thesis hinges on Alphabet's ability to fund its AI buildout internally, citing over $120 billion in liquid assets and $164.71 billion in full-year 2025 operating cash flow. He contrasts this with peers who lean on corporate debt, suggesting a financial resilience that the market underappreciates.
While acknowledging the real risks—including a doubling of long-term debt from $46.5 billion to $98.2 billion and a paused buyback—he sees the $460 billion Cloud backlog as a leading indicator of demand. The recent antitrust ruling that avoided a business breakup also reduces a long-standing overhang, making the stock's low P/E more attractive in his view.
His approach is contrarian: instead of diversifying into Microsoft, Amazon, or Meta, he concentrates on Alphabet because it offers multiple growth engines—Cloud, Search, and YouTube—at a valuation he considers a mispricing. The bet is that AI-driven demand will justify the capex, and he is willing to buy more if the stock price allows.
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