Transcription
Hello everyone and welcome back. In this video, we are going to talk about Google Alphabet because they decided to raise $80 billion of capital to fund data centers to fund the AI story. And in this video, I want to, um, explain what is happening and share my opinion because I'm a shareholder of Google. I've been a shareholder of Google since 2018. So, it's been a couple of years now and I've been following the trends. What is happening and what is happening right now is very strange. What is happening right now is new. Google is playing a new game that they have never played before. And in this video, I want to tell you the positives of this new move, but also the negatives and what it will do to the stock price.
Okay, in case this is your first video from this channel, welcome. My name is Christoph Nur. I've been investing in the stock market for almost a decade now and I have achieved a performance of 25% per year, also thanks to Google, right? Because, uh, all the shareholders have been handsomely rewarded. So, what did we learn a few hours ago as I'm recording this video? It's just the day after this. Alphabet is seeking to raise $80 billion to fund AI infrastructure and compute capacity. So, $30 billion in underwritten offerings, but also $40 billion through ATM program and $10 billion private placement from Berkshire Hathaway. As I'm recording this video, it's been a couple of hours and let me put the website in English so you understand better. English. Google is down as we are speaking, minus 2% and Berkshire Hathaway is flat. So, no big deal for the company, the conglomerate of Warren Buffett and Greg Abel. Okay, the first reaction from the market is down and I agree with this move. I think on a, on a short-term basis, it will impact the business, it will impact the margins, it will impact the cash flow, but on a long-term basis, that is debatable. Maybe this is short-term pain, long-term gain for Google. So now the stock is down. The market is seeing something negative about this new, uh, action.
Here is what we learned. We learned that they want $80 billion more to fund more capex. As you probably know, the capex of Google is skyrocketing. The capital expenditures, the capex are just up and to the right. And we see no signs of stopping. Why? Because we have too much demand for AI. Okay, demand is higher than supply. So they have to build. And you look at the capex over time. It was at $20 billion, $30 billion. And since 2024, 2025, everything is accelerating. And they have guided for a huge capex in 2026 and a huge capex in 2027. So I don't see any signs of deceleration. I actually see signs of reacceleration for the capex story because as Google is reporting, uh, this new article. We have something else. We have HP that reported earnings and also, let me put the website in English and not in French. The, um, HP reported earnings and they were spectacular earnings. Buildout of data centers. The AI revenue coming from HP is skyrocketing. It doubled or tripled. A few days ago, we had the same phenomenon for Dell. They reported earnings. I think last Friday, last Thursday, the stock was up 30% and now the stock is after this up 10%. And now it's up in sympathy to HP because the AI revenue coming from Dell doubled, tripled. They increased their guidance. They increased the revenue guidance, profits guidance. They said we expect backlog at the end of the year to be multiples of what the current backlog is. So they see a massive wave of new demand that is so spectacular that they think it will continue to reaccelerate. We are at a pivotal moment where everything is accelerating. So for all the people talking about the peak bubble, AI bubble, capex bubble, it seems like the music is very loud and it just got louder this week because of Dell, because of, uh, HP, also because of Nvidia. They announced some partnerships, some new racks, some new technologies. Nvidia reported earnings a couple of days ago and the revenue was up 80%, 90%. So everything is accelerating. Before Nvidia was growing revenue at 60% and it accelerated 60%, 70%, 80%, 90%. So the, uh, infrastructure play is very fast and very strong and it just got stronger this week. We are at an inflection point and there are some specific stocks that will benefit.
Okay, coming back to Google, they decided to dilute shareholders. I can show you this. This is from Twitter. Google equity raises. They raised some capital, some capital in 2004, 2005 and then did nothing and then a massive equity raise. They decided to dilute shareholders. And I can show you what I mean because I can navigate on Fiscal and show you the buybacks and dilution that the company had for the past decade or the past, yeah, this is we find the past 20 years. You can see the change in shares for Google. For many years between 2006 and 2016, the company had a lot of SBC stock-based compensation. So they added more shares which diluted shareholders. It diluted you, the shareholder, and then they were having excess cash. So they decided to use this cash to buy back shares. And as the stock price went cheaper in 2020 or 2022, 2023, they decided to do a lot of buybacks. By the way, if you want to become a better investor and improve your performance, I have a coaching program. It gives you the exact method I've used to generate 25% per year for almost a decade. More on that at the end of the video. And now they are financing this mega capex cycle. So they are slowing down on the buybacks, putting all the cash towards capex and they are even raising cash, diluting shareholders to fund capex. Expect buybacks to completely stop. Okay. By the way, if you want to use Fiscal, I have a link in my description to use it completely for free for two weeks. It's a wonderful website that I'm using on a daily basis. Go on the link in the description. Two weeks completely for free. Okay, try it out. So now I think they will have to dilute shareholders. The number of shares will go up to finance the capex. I want to write some things for today. I want to explain the good and the bad. Okay. So you have a pretty complete view and this is the maybe the only video you need to watch to understand this move.
Is this a big deal or not? First point is the demands of data center buildout. The token costs are even more insatiable than we thought. So HP, Dell, Nvidia news, I talked about this earnings reports, I talked about the releases, they are all abugating their guidance. They are all saying we need more infrastructure. So if Google decides they will need to raise money, it's a clear positive. You see massive demand, it's a positive for Google. Massive demand that will lead to more revenue. Also, at the same time, we already see the impact of this capex as you are supply constrained, the Google Cloud revenue is reaccelerating massively. And look at the Google Cloud revenue on Fiscal here, growing 63%. So you clearly see an inflection point from two quarters ago. The cloud was growing 30% per year. Now 60% per year. Maybe it can grow more and the revenue can grow a lot more in the future.
Second point, if you raise $10 billion, $80 billion, it means you see return on investment, right? They maybe see positive return on investment from capex. I talked about the revenue acceleration, but maybe more, okay, maybe better margins, maybe you can cut some staff, become more efficient. If you plow so many billions into capex, maybe that's a sign that they see, uh, things in the AI ecosystem. They had a conference, IO conference a couple of days ago about, um, the token usage, the demand for AI and how their customers, Google customers who are using AI on their daily habits and the demand was multiplied by seven. So if the demand is, uh, 7x, you have to build more. Okay. And maybe Google is the ultimate AI play because they are touching everything. And this is my third positive point. Google, uh, let me say Alphabet is, um, touching many parts of the AI ecosystem with synergies. They are in the cloud segment, as I told you, and they are reaccelerating 60% per year. So they are competing in the cloud environment with Microsoft, for example, or AWS with Amazon. But also Google is creating their own chips. So they're competing in the chip department. But also Google is competing in the advertising niche. Advertising, they are competing with Meta Platforms, for example, or Amazon or Snapchat or Pinterest or so they are competing in already three fronts. Also Google is competing on LLMs with Gemini. So they are competing with Cloud and competing with ChatGPT. Four battlegrounds, four battlefields. So they have, uh, four times more chances of needing the capex, right? It's not as if you were a niche player in one niche industry. Maybe that's not justified to raise capital to fund capex. Okay, about what? No, Google has plenty of opportunities because they're fighting many battles, many wars at the same time. So maybe that's significant. Maybe that's a big sign that the four core, the core four segments are in excess demand. And maybe I'm forgetting a fifth one, a sixth one, but you get my point. They are fighting on every ground. And you will see synergies. You will see synergies. You will see benefits of the cloud that will help the advertising that will help the LLMs because of more data. And this is the moat of Google. The moat of Google is this positive flywheel they have built for so many years. I know this. I'm a shareholder since 2018. You have a virtuous cycle, a flywheel effect. More data means better service. Better service means more customers will use their service. And if more customers use their service, you will have even more data. More data, better service, better customers. More data, etc., etc., etc. And for the moment, it is working. And by the way, this is the reason why Baidu, the Chinese Google, is not working because you don't have this virtuous cycle. Okay, you have a legendary investor called Rob Vinel that talked extensively about the differences between Google and Baidu. In case you are interested, uh, you can check this.
So, positive signs that, um, tell us how bullish it is for Google. Also, at the same time, strangely enough, Berkshire Hathaway is putting $10 billion in Google. Berkshire Hathaway is the conglomerate of Warren Buffett that just retired. So now they have a CEO called Greg Abel and they bought Google when Google was already high. They did not buy Google last year in 2025, but they bought Google a bit after this, like $250 and then they bought again at $300 and now they bought again. Okay, $10 billion more and they negotiated a price to have a discount, as always with Berkshire Hathaway. So in addition, you can see this paragraph. Alphabet has reached an agreement to sell $10 billion of stock to Berkshire Hathaway in a private placement comprised of $5 billion Class A stock at the price of $350 and $5 billion Class C stock at 350. Anyway, now the stock price of Alphabet is $376. So, they got a little bit of a discount at 350. Anyway, that's peanuts. Maybe Berkshire Hathaway wants to be part of this mega ecosystem that will benefit from all these parts. Okay, maybe Berkshire Hathaway, they don't know what to do with the cash. So, if you don't know what to do with the cash, either you can invest in treasuries or not. So I think this move, this capital raise can be a clear positive to Google, even though you dilute shareholders, because it can continue to reaccelerate revenue a lot and it's also a signal for you, shareholder or investor in general, because you can see how big the demand is for infrastructure. They have to raise billions of dollars in debt to fund the capex. I told you about the capex line that is accelerating. I can also show you the amount of cash Google has and the amount of debt they have. I can show you on a quarterly basis. The blue is the cash. The orange is the debt. Here you can see that the debt is skyrocketing. So they really need to fund this capex. The cash flows are not enough. They need to raise more debt. They need to raise more equity. They will use all the cash of the world to fund this capex. This is how important that is. Okay.
And I think this is a pretty good transition for the negatives I am seeing right now. First of all, in terms of timing and overvaluation, I think it's a pretty good timing for them to dilute shareholders. Okay? And it is negative for shareholders because now the stock price is high and the, I can show you the PE ratio of Google. This is the PE ratio of Google, 28. But because Google has such massive gains in their private placements like Anthropic, you have to account for, uh, pay per gains on this one. And I created this metric called the PE ratio without the investment gains. It's a metric that another YouTuber, Arya, um, created. So congratulations to him. And if you adjust for this private placement in Anthropic, in SpaceX, the PE ratio of Google, the real core operations of Google, have a PE ratio of 43. Okay? So it's not cheap. Google is not cheap. You can see a clear gap. I can show you this. A clear gap between the blue, so what the media is saying, a PE ratio of 28, and the real core operations of Google with a real PE ratio of 43. Google did not dilute shareholders when it was cheap at a PE ratio of 20. They were doing buybacks and dividends. And now that the stock is, it's not, it's expensive from a PE ratio of 20 to 43. They are diluting shareholders. It's a good timing. You want to dilute shareholders when they are expensive. But it's a negative because it's a sign for us shareholders that they know it's expensive. Okay? So on a risk-reward basis, maybe the management is telling you, we are expensive. We are not cheap. We are really expensive at the moment. Timing, overvaluation. Management says they are expensive. Management team says we are expensive. Okay, first negative.
Second negative, I talked about the debt. Massive, massive debt because I discussed the debt. It will continue. It's a clear signal of more demand is coming, more capex is coming. So in the future, that's another signal that you can expect more debt. And if you have a business that has more debt, it's a big change. For the past decade, the past two decades, Google was known for having a pristine balance sheet, a perfect balance sheet. They were drowning in cash. And now, as you can see, the orange line is skyrocketing. The debt is skyrocketing. The agreement we just had a few hours ago, it's a sign that the balance sheet will continue to worsen. They will take more debt, which means they will have to pay more interest, interest, uh, on their income statement and it will lower margins. And also the big capex will create D&A expense, depreciation amortization. So maybe in the future margins will go down. If they, maybe it will go up because they are fantastic. Maybe they will fail and they will go down. But now you have additional cost pressures. So another negative is the massive debt that will grow and will continue to grow in the future. Another negative is massive D&A depreciation amortization cost that will impact your margins over time. Okay? So not very good to have this massive dilution. Also, I forget to mention it, but dilution, dilution, uh, that's the reverse of buybacks. So for shareholders, it's not great. Per share dilution, per share dilution. Okay? So the earnings per share will get impacted, the free cash flow per share will get impacted. I know what people have said publicly, this is a small capital raise compared to the total size of the market cap. So it's talking about peanuts, dilution of 1%, 2%. But maybe it's just starting. What if they continue to raise capital and dilute us shareholders every year? I don't want this. I invest in Google because it's a big conglomerate and they were doing buybacks for so many years. I don't want to be diluted. I don't know for other shareholders, but I, I hate being diluted. The company for 10 years in a row, they're doing buybacks and buybacks. This line is negative. So they reduce the amount of shares. Buybacks, buybacks, buybacks. And when the stock was cheap, they did more buybacks. Life was good. Okay, use your cash to repurchase shares when you are cheap. And now it's no longer the case. And this line will go back up after so many years. I mean, since 2018, the line has always been down. So buybacks every year. And we are reverting back to diluting shareholders. So they have to deliver. You are using more debt. You are diluting your own shareholders, your own partners. You have to deliver and reaccelerate revenue. So for the moment, revenue is accelerating. Wait and see how high can it grow. You can look at the cloud revenue or even the total revenue. The revenue right now of Google is at 21%. Is this justified? You have such a massive capex. Is this justified to have all this cost, all this capex for only a growth rate of 21%? If the growth rate doesn't grow and stays at 20%, my opinion is it's not worth it. But if the revenue grows like we had in 2020, 2021 and it grows to 30%, 60%, oh boy, that is worth it. Okay, now we don't know. It's a big question mark if the revenue reaccelerates to 30%, 40%. It will be immense and Google has the potential to become the largest company on Earth by a wide margin, but they have to deliver. Okay, I think they can deliver. This is why despite all the negatives, I'm still holding. I did not sell out of my positions. But you have growing signals, more debt, more D&A, more capex. The company is clearly becoming more capital intensive by the day. I can show you this ratio on Fiscal. You go down, capital efficiency. Uh, you go on capex to operating cash flow. How much of your operating cash flows are you using to fund the capex? And you see, uh, let me smooth things out so you understand better. You can see for the past decade, the capital intensity of Google. Before, Google was asset-light. They were using, look at this, 2016, they were using 0.28, 28%. So 28% of the operating cash flows were used to fund capex and then it went up, down, 50%, back to 27% and now it went up to 50, 56%. So in the past, Google was drowning in cash. In the past, Google had minimal capex whereas they were asset-light. Now they are not asset-light at all. They are changing the rules of the game. They are playing a new game that they have never played before. Okay. So they are becoming capital intensive. The capex is very high, 63% of the operating cash flows. And on a more granular level, it's 78%. They're using, let's say, 70% of the cash flows to fund capex and it is not enough. So they need to raise capital to fund the capex. Maybe in the next quarter, they will raise their guidance for capex and they will do even more capex. They want to create an AI god. I get it. At what cost? This is concerning for me as a shareholder. You see the capex line skyrocketing and it creates a lot of uncertainty. Okay, a lot of uncertainty for Google. Now tokens are being subsidized, but it will no longer be the case. So the AI picture is about to change drastically. I think it's late 2026, beginning 2027 as, um, OpenAI will become public. Anthropic just released an S1 document to become an IPO public company. I think LLMs will change drastically and it creates a lot of uncertainty for Google and for all the shareholders. So for the moment, markets are in wait and see mode. The markets, it's a little bit down. I don't know when you will watch this video, if it will be up, down, flat. But people have worries. I'm seeing what is happening on YouTube, on Twitter. People have worries. I'm following what, um, professional investors, big investment bankers are saying about Google. I don't like this, actually. If you want my opinion, I don't like what I'm seeing. Yes, you have massive demand for Dell, HP, Nvidia, but why not raise more debt? Why not raise more debt? They could have used it. So you, I mean, you have to do the formula yourself. What is the cost of debt for Google? They just had the debt for many decades. They issued debt, they issued bonds for more than 50 years. They issued bonds in, in Yen, Japanese bonds. So they can issue debt at almost 0% interest rates if they want to adjust it for inflation. They have the power to go to any bank and ask for a loan. Why did they decide to dilute shareholders? It's a big question. Maybe they're telling you that the stock is expensive. Maybe they don't want to be above a certain threshold of debt, or maybe they don't care. They dilute shareholders by 2%. It's nothing of a big worry. Okay. So maybe if they decide to use all the capital of the world, the priority of Google is not return on investment and it is a negative I am adding to the list. Um, the rush towards capex is maybe a sign that return on investment is not their priority. If return on investment and efficiency is your priority, you want to be mathematically correct about whether you should use a debt or not, or big capex, low capex, be conservative and just focusing on margins or efficiency. It seems like it's not the case for Google. They are putting all the cash of the world towards capex with debt, with equity raises, and they don't care whether they dilute shareholders or take on debt. They don't care. It's not their priority. They will make deals with everybody. Their priority is revenue growth, is infrastructure and implementing AI and winning the AI race. Maybe this is their priority. Maybe this is the bottom line of this new article. They are raising cash because they want to take all the money of the world to fund this AI infrastructure to not be left behind. They want to win the race and they don't care if they have to take a lot of debt, a lot of equity raises. They will do whatever it takes. I think this is what is happening. They don't care about financial engineering. They don't care about optimizing the margins. They don't care about optimizing the capex to be as efficient as possible. No, they are supply constrained. You have a lot of demand. You have an industry that is in the early innings. So they will plow all the cash, your cash, my cash. I mean, we are being diluted, all the debt of the world for every country. You can expect massive debt increases in the future. You can expect massive dilution to just feed this mega capex cycle. And if they can pull this off and if the revenue reaccelerates to 20% per year, 30% per year or even more, Google can win and they will become eventually the biggest company on Earth. So it becomes a risky game. I don't like to see it as a shareholder, but wait and see. Okay.
Uh, if you want to know what I'm doing with my portfolio, I trimmed Google a few months ago, twice actually, because the stock went up so much. I was not comfortable with the risk-reward. It was a very large part of my portfolio. So, I trimmed and then the stock continues to go up, as you can see here. So, I trimmed again to fund more asset companies that went up also again. And now the stock price is also rebounding. So we're almost at $400. If this trend continues and I don't see a clear return on investment, I don't see a clear reacceleration of revenue, I will be very happy to trim and buy other things. Okay, I did the trimming to fund other companies like Fortinet in the cybersecurity industry that for the moment is making me a fortune. Okay, skyrocketing. And I also trimmed Google in the past few months to fund MSCI. Let me show you in English. Oh, anyway. And for the moment, it seems like it's a winning trade, but it's too early to judge. So, wait and see. It's a small capital raise, but it's the first time we've had this for years. As you can see here, the first time in 10 years that they are raising capital. What if it's only starting? What if they will raise capital every year and dilute you every year? Okay, so you want to check what they do with your cash. This is your cash after all. You are a shareholder, you are a shareholder, you are a partner, you are an owner. You have to verify what they do with your cash. So all in all, mixed views on this Google report. I wish they didn't do it. And now we want reacceleration of revenue. 20% growth rate is not enough to justify this. So let's see. Maybe in the next quarter they will shock the world and reaccelerate. Actually, that is very likely that next quarter they grow a lot more and the stock goes up because, uh, it shows that capex is paying off. Maybe, maybe not. We will see. But yeah, now you know what is happening with Google. All the moving parts, the debt, the equity raises, Berkshire Hathaway, the margins, the additional cost. Google is becoming a complex investment. Now the stock is not cheap at all. It's either slightly overvalued or overvalued. And I don't plan to buy any more shares. It's either I hold or I trim. I hope this video was helpful to you and I see you tomorrow for another video. If you like this content and you want to go deeper, I have a coaching program. In this program, you will learn my strategy to generate 25% annual returns. You will learn how to find winning opportunities. You will learn how to properly value any stock, when to buy, when to sell, so that you can build a strong portfolio filled with great companies. Additionally, inside this coaching program, you will have access to an exclusive community of like-minded investors and also you will have my personalized guidance to reach your investing goals. Click the first link in the description to get more information. You will get a video that explains how everything works completely for free. No need for your email address. Just click the link in the description and I'll see you on the other side.