TIP847: Alphabet (GOOGL): The Megacap That Still Might Be Underrated w/ Kyle Grieve & Shawn O’Malley

What It Covers

Kyle Grieve and Shawn O'Malley revisit Alphabet (GOOGL), their intrinsic value portfolio's second-largest position at 14% weighting, up 90% since purchase. They examine how AI has reshaped the search narrative, Google Cloud's explosive growth to a $500B backlog, Waymo's tripling valuation, and whether $200B in annual data center spending will generate adequate returns.

Key Questions Answered

• •AI Search Monetization: Contrary to 2024 fears that LLMs would kill Google search, revenue in the "Google Search and Other" segment has compounded at 14% annually over two years. Less than 25% of searches carry ads, meaning AI overviews create new monetizable real estate by embedding ads above, below, and directly inside AI-generated answers without cannibalizing existing inventory.
• •Google Cloud Inflection Point: Cloud revenue reached $58B in 2024 at 24% operating margins, growing at 63% and 82% year-over-year in Q1 and Q2 of 2026. Annualized Q2 revenue runs near $100B, doubling from early 2024. Margins at 36% now match AWS's 2025 profitability levels, years ahead of schedule, suggesting the segment has structurally turned the corner.
• •Backlog Concentration Risk: Alphabet's cloud backlog grew from $106B to $500B in roughly 12 months, but Anthropic's five-year $200B deal represents approximately 40% of that total. Investors should monitor customer concentration carefully: if Anthropic's business deteriorates before an IPO, a large portion of that backlog could evaporate, making the headline figure misleading without understanding the underlying customer composition.
• •Depreciation Accounting Caution: Michael Burry argues hyperscalers collectively understate depreciation by up to $175B over coming years by using six-year useful-life assumptions on chips that may need replacement every three years. Every dollar Alphabet spends on data centers today becomes future depreciation expense, meaning current operating margins in the low 30s will compress automatically even if revenue stays flat.
• •Capital Structure Shift: Alphabet's long-term debt has grown roughly nine times since fiscal 2024, reaching $98B. Share count hit its highest level since 2024 as the company completed an $85B equity raise. Buybacks, which ran $45-60B annually from 2023-2025, dropped to zero in the first half of 2026. Investors should recalibrate per-share intrinsic value models to reflect this structural shift away from capital return.
• •Vertical Integration Advantage: Alphabet's seventh-generation Tensor Processing Units cost approximately 40% less than equivalent Nvidia chips, providing a structural cost edge over cloud competitors like CoreWeave and Nebius. Additionally, Alphabet can redirect unused compute capacity internally toward Search, YouTube, and Gemini during demand shortfalls, eliminating the idle-capacity problem that pressures pure-play cloud rental businesses during market downturns.