Latest / Stock Picking with Fexingo: Individual Equities, Research, and Building a Concentrated Portfolio / Why Alphabet Is Defying the Tech Selloff
Transcript
- Lucas: Let me start with a number that jumped off the page this week. The Nasdaq dropped nearly 3 percent in five days, yet Alphabet—ticker g o o g l—actually gained six percent. That is a massive divergence within megacap tech, and it tells a really specific story about how the market is thinking right now. Luna: That is a big move. Other names like NVIDIA and Tesla got crushed. So what makes Google different? Lucas: A couple of things. First, the Fed's meeting this week—they held rates steady, but the statement had a notable shift on the AI investment front. The Fed basically acknowledged that ai related capex is creating excess capacity risks, and that seems to have hit the hardware plays like NVIDIA and the more speculative names. But Google's revenue is much more tied to advertising and cloud services, not chip sales. So it's less exposed to that specific worry. Luna: Right, so the Fed's caution is actually helping stocks that have more tangible cash flows? Lucas: Exactly. And you can see it in the price action—Apple also gained five percent, and Microsoft up two percent. These are companies with diversified revenue, strong balance sheets, and products people use every day. The market is rewarding that reliability. But Alphabet's six percent move is the largest of the bunch, and I think there's a specific reason for that. Luna: What is it? Lucas: Google's AI monetization is becoming visible in a way that other companies' isn't. Its AI Overviews in search are driving higher click-through rates, and its cloud business just reported a string of strong quarters. Meanwhile, the $2.5 billion cybersecurity acquisition of Wiz—that's still pending regulatory approval—is signaling that Google is serious about becoming a platform in enterprise security. The market seems to be pricing in that these bets are starting to pay off. Luna: It's interesting because a lot of the AI hype earlier this year was about NVIDIA and the hardware layer. Now the conversation is shifting to who actually profits from AI. Google might be a prime candidate. Lucas: Exactly. The hardware narrative is getting a reality check from the Fed's comments about oversupply. But the application layer—the businesses that use AI to sell more ads, more cloud services, more subscriptions—that's where the revenue is. And Google has the scale to do that better than almost anyone. Luna: Let's talk about the ad business. That's still the majority of revenue. How exposed is Google to a potential advertising slowdown? Lucas: That's the million-dollar question. Google's ad revenue has been resilient partly because of AI improvements in targeting. But there's always macro risk. If the Fed's hawkishness eventually slows the economy, ad budgets get cut. However, Google also has a massive buffer in its search monopoly. It's the default for intent-driven advertising. That moat is hard to break. Luna: And that ad revenue moat is something I think a lot of listeners probably take for granted. It's easy to overlook how much of the internet runs on Google's infrastructure. Lucas: Yeah, it's a machine that keeps printing cash. Speaking of things that keep going—a quick note: This show stays ad-free because of listener support. A few dollars a month on buy me a coffee dot com slash fexingo genuinely helps us keep researching these angles. If you've gotten value from our conversations, it's the best way to pay it forward. Luna: Absolutely. Now back to that cash flow machine—are there any risks to Google's ad business that breakout this week? Lucas: There's always regulatory overhang. The DOJ's antitrust case is pending, and a ruling could force Google to change its search distribution deals. But the stock's reaction this week suggests investors are more focused on the near-term earnings trajectory. Also, the China headline about threatening retaliation for the humanoid robot ban—that's more of a hit to companies with direct China exposure, like NVIDIA. Google has minimal hardware sales into China, so it's insulated. Luna: So for a concentrated portfolio, would you overweight Alphabet over some of the other megacaps right now? Lucas: I think it depends on your risk tolerance. Alphabet is cheaper than Microsoft on a forward P/E basis—around 22 times earnings versus Microsoft's 29. It has a strong buyback program and a growing dividend. The cloud business is gaining share. But it's also facing legal risks and slower growth in its core ad business as the market matures. For a concentrated portfolio, I like it as a core holding, but you have to be comfortable with the regulatory uncertainty. Luna: What about the competition from other AI products? ChatGPT is replacing some search use cases. Lucas: That's a real threat, but Google's response—AI Overviews and its Gemini model—seems to be working. The data shows that Google's market share in search has stabilized. Plus, YouTube is a massive growth engine that people often overlook. That's part of the Alphabet story too. Luna: So the bottom line this week: Alphabet is winning the rotation because of its diversified AI narrative and less exposure to hardware and China. For stock pickers, it's a name worth revisiting. Lucas: Exactly. The key takeaway is that not all tech is created equal. The Fed's meeting drew a line between companies that build the tools and companies that use them to generate returns. Alphabet sits firmly in the latter camp, and the market is rewarding that. Luna: And with the Dow flat and the NASDAQ down 3 percent, that divergence is the most actionable signal we have right now. Lucas: Agreed. Next episode, we'll look at another stock that stood out this week—Pfizer was up over 2 percent amid the selloff. That's a sector rotation we haven't discussed yet. Luna: Looking forward to it. For now, if you want to support the show, you know where to find it. Lucas: Buy me a coffee dot com slash fexingo. Thanks for listening.