Alphabet (GOOGL) as a Long-Term AI Winner
Alphabet Google (GOOGL) rose in the market and stands as a long-term winner. The company has executed against big opportunities for decades. Its data center systems business sits in a category set to grow fast, moving from about half a trillion dollars to $700 billion, and likely past a trillion dollars within the next few years.
Wall Street has punished GOOGL for its capex spending, pushing the stock down 10 to 15% off its highs. This creates a chance to buy one of the best companies in the world while it positions for future growth. The heavy spending has strong reasons behind it.
The $500 Billion Backlog
GOOGL's backlog - future revenue already sold that it cannot fulfill yet - stands at $500 billion. That is more than the company received in the prior 12 months. This sets it up to more than double its cloud infrastructure revenue. Spending $200 billion to serve a $500 billion backlog is a sound move; only short-sighted traders focused on cash flows over the next two to four quarters would call it a bad idea. Cloud customers are spending 50% above their committed levels and telling GOOGL they cannot get enough capacity.
For long-term investors, the AI buildout is just getting started and ramping up. GOOGL is well placed thanks to its record of strong execution and its willingness to ignore short-term Wall Street worries in favor of long-term opportunities.
No Slowdown in Demand
GOOGL and Meta (META), both up on the day, would gain from any slowdown in Claude, ChatGPT, and Grok. Consumer demand growth shows no drop-off, creating a wide gap between the stock price and actual demand. The people choosing to spend and invest are smart, and the returns should come - maybe not in a perfect amount, but they will come.
The claim that AI is slowing rather than speeding up goes against all the data. Firms in the metalwork business are winning contracts from Google, Meta (META), Alphabet, and Microsoft (MSFT) worth hundreds of millions of dollars just for exhaust pipes for generators planned over the next 3 to 5 years. Vibe coders and everyone involved are spending more and getting more return than 3 or 6 months ago, with no slowdown they can see.
Talking points about a slowdown, and CEOs saying they need to "pace the frontier," should be ignored - that talk looks like an attempt at regulatory capture, and it will not work. Watch what people and companies actually spend and commit to. The AI arms race is heating up, money is moving in on a massive scale, and companies benefit up and down the line.
Where the Growth Comes From: Gemini
The consumer demand growth is coming from Gemini. Gemini gets talked about less than rival platforms, but it is a strong product that has not yet entered public consciousness. Betting against Alphabet now is like betting against it in 2000-2001 when search and advertising were just starting - a big mistake.
Gemini is starting to take off, and the data center side, driven by consumer and business demand, is carrying growth. GOOGL is falling a little behind, with Microsoft Azure (MSFT) pacing at the highest level in the data. Alphabet's infrastructure build-out will help close that gap. There will be multiple winners in this space, and Alphabet is expected to be one of the big ones.
