$Alphabet(GOOGL.US)
Google is in a weird position today.Let’s say they raise CapEx from $190B, the expected amount right now, to $200-$220B.It would be super bullish for all the Semis, but would the market think that’s bearish for hyperscalers? Would $Meta Platforms(META.US) $Microsoft(MSFT.US) $Amazon(AMZN.US) go down on that news because they will be expected to raise? Google just diluted by $85B so the assumption is they will either increase capex or at the very least keep it flat per their previous guidance. Now, let’s say Google increases their cloud business revenue growth rate again from last Q’s 63% to something like 70%. Amazing growth, but they obviously need to spend more on capex to meet the demand, does the market think that the capex increase is justified at that point if their cloud business is meaningfully growing?What if their RPO, which is now at $450B, goes to something like $550B? Oracle and Microsoft increased their RPO’s by $100-$200B last Q, but the problem is most of that RPO is coming from OpenAI and Anthropic. So if Google says the RPO isn’t distributed but more concentrated, does the market get concerned on if that RPO can convert into revenue? Google is also making their own chips, what implication does that business have on $NVIDIA(NVDA.US) $Broadcom(AVGO.US) even if they increase capex?Last Q, Google also had equity stakes in $SpaceX(SPCX.US) and Anthropic which saw valuation reratings that boosted their EPS. They won’t have that this time. It’s going to be one of those quarters where the market will have to ask many questions around what is happening with capex, why is it increasing if it is, and where the growth is coming from to justify the increase. If they decrease capex, it becomes a whole different question. I think we get a strong quarter but many questions to be answered that Google will set the stage for when it comes to Big Tech earnings.Source: amit
