This video analyzes Google's (Alphabet's) recent stock performance, which has reached all-time highs. The host attributes the rally to several factors: the perceived success of its Gemini AI model in taking market share from OpenAI, the fading threat of competitors like Perplexity, and the potential for a new revenue stream from selling its custom TPU hardware to third parties like Meta. He also discusses Berkshire Hathaway's recent Q3 investment, clarifying that it was likely purchased at a much lower price and not necessarily by Warren Buffett himself.
The core of the analysis is a valuation critique. The host argues that the stock's surge is primarily due to multiple expansion rather than fundamental business growth, with its Price to Operating Cash Flow (P/OCF) ratio now at a 16-year high. A discounted cash flow (DCF) analysis suggests that even with optimistic assumptions, future returns are likely to be modest. He concludes that Google is no longer an attractive buy at its current price, as a highly optimistic future is already priced in.
Analysis of Google's Stock at All-Time Highs
0:01 Stock Performance: Google's stock is at an all-time high, having risen roughly 100% from its lows earlier in the year. The host questions if it's still a buy.
1:54 Perceived AI Dominance: Google is outperforming the "OpenAI gang" (Microsoft, Nvidia, Oracle). The host attributes this to the success of its Gemini 3.0 model and the decline of competing AI search engines like Perplexity, which he views as a failed threat.
3:22 OpenAI's Unsustainable Model: While Gemini gains market share, OpenAI is projected to lose massive amounts of money through 2030, requiring over $200 billion in additional funding. The host is skeptical they can raise this capital, especially as they lose momentum to Google.
5:35 Google's Strategic Advantage: As a highly profitable company, Google can afford to operate Gemini at a loss to bleed the unprofitable OpenAI dry.
6:08 New Hardware Revenue (TPUs): Google plans to sell its Tensor Processing Units (TPUs) to third parties, with Meta reportedly in talks to buy billions of dollars worth. The host notes Nvidia's public reaction to this news seemed defensive, suggesting they may be nervous about the competition.
9:16 Berkshire Hathaway's Stake: Berkshire Hathaway disclosed a $4.3 billion stake, but the host rejects the premise that this is a "Buffett stamp of approval." He points out the purchase occurred in Q3 at a significantly lower price and was likely made by one of Buffett's portfolio managers, not Buffett himself.
11:58 Extreme Valuation: Google is trading at a Price to Operating Cash Flow (P/OCF) multiple of 25.2, a 16-year high. Its long-term average is 17.5.
12:43 Gains Driven by Multiple Expansion: Since the stock bottomed, its price is up 103%. However, operating cash flow only grew 14.2%, while the P/OCF multiple expanded by 77.6%. This means future returns from further multiple expansion are improbable.
13:55 Unimpressive Future Returns: A discounted cash flow (DCF) model shows that even with optimistic growth (17% annually) and a sustained high multiple (20 P/OCF), the stock would only produce a ~14% annual return.
16:34 Conclusion: Not a Buy: The host's opinion is clear: the stock is no longer a good risk-reward opportunity. A very optimistic future is already priced in, and the time to buy was when there was fear and uncertainty, not at an all-time high valuation.