Latest / Stock Picking with Fexingo: Individual Equities, Research, and Building a Concentrated Portfolio / How Alphabet Lost Forty Billion in a Week
Transcript
- Lucas: Alphabet lost about forty billion dollars in market cap last week. The stock dropped four percent in five sessions, which is a lot for a company that size — we're talking about a roughly two trillion dollar company shedding two percent of itself in a week. And the broader market was basically flat, so this wasn't just a macro thing. Luna: Four percent on a name that big — that's not a blip. What's driving it? Lucas: There are two main forces at play, and they're very different in nature. The first is renewed antitrust pressure — there was chatter last week about a potential second Justice Department case targeting Google's ad tech stack, something that's been percolating for years but seems to be gaining momentum. The second is simpler: money is rotating out of mega-cap tech and into energy and banks. Luna: If today's deep dive on Alphabet was useful to you, here's something — the reason we can do these deep dives without ads or sponsors is listener support. If you want to keep this going, you can buy me a coffee at buy me a coffee dot com slash fexingo. That's buy me a coffee dot com slash fexingo. No pressure, just if the show adds value for you. Lucas: Yeah, that's the whole engine. So back to Alphabet — the antitrust angle is worth unpacking because it's not just about a headline. The DOJ has already won a case against Google's search monopoly, and now there's talk about a follow-up targeting the ad server business. That's where Google makes a huge chunk of its profit. Luna: Right, the ad tech stack is basically the cash register. If that gets disrupted, the margin structure changes. Lucas: Exactly. And the thing is, the market hasn't fully priced in that risk yet. Alphabet still trades at around twenty-two times forward earnings, which is not expensive for a mega-cap tech company. But if you start assuming that ad tech margins get compressed, that multiple might be too high. Luna: Meanwhile, Chevron was up almost five percent last week. XOM up two percent. Banks like JPMorgan are reporting booming revenue thanks to the SpaceX IPO and Iran war volatility. The rotation is real. Lucas: It is strikingly real. Look at the numbers — Chevron at one hundred eighty-two dollars, up 4.7 percent in a week. JPMorgan at three thirty-four, but that's actually down a bit on the week because of profit-taking ahead of earnings. The point is, money that was sitting in mega-cap tech is moving into sectors that benefit from higher energy prices and higher interest rates. Luna: Alphabet's drop — is it just rotation, or is there something Google-specific that's worse? Lucas: I think it's both. The rotation explains maybe half the move. But the antitrust narrative adds a layer of uncertainty that Alphabet's peers don't have right now. Compare it to Meta, which was up almost seven percent last week — Meta's not facing the same regulatory overhang. NVIDIA up three and a half percent. So Alphabet is getting hit from both sides. Luna: And the broader market — S&P 500 up point two percent, Nasdaq also up point two percent. So it's not a tech selloff broadly. It's Alphabet. Lucas: That's the key distinction. If this were a sector-wide rotation, you'd see Microsoft down, Amazon down, Meta down. But Microsoft was up point six percent, Amazon up half a percent. Only Alphabet and Tesla were down among the mega-caps. Tesla down two percent — that's its own story with delivery numbers and margin compression. But Alphabet's decline stands out. Luna: So if I'm a stock picker looking at this, the question is: is Alphabet at three fifty-two a buy? Or is it a value trap? Lucas: That is exactly the question. And I think the answer depends on your time horizon. If you're looking at the next six months, the antitrust overhang is not going away. The DOJ is likely to file something before the end of the year. That creates headline risk every time there's a court filing or a leak. Luna: But longer term, Google's moat is still enormous. They have the search data, the cloud business is growing, YouTube is a monster. The ad tech business is under threat, but it's not like Google is a one-trick pony. Lucas: No, it's not. But here's the thing — the cloud business is still losing money relative to AWS and Azure. YouTube's growth is slowing as competition from TikTok and other platforms intensifies. And search is facing a new challenge from ai driven alternatives like Perplexity and even Microsoft's Copilot integration. Luna: So the moat is getting narrower. Lucas: I think that's a fair characterization. The moat is still wide, but it's not getting wider. And when you have a stock that's down four percent in a week on a flat market, the market is telling you that the risk premium is going up. The question is whether the risk is already priced in. Luna: What would make you a buyer here? Lucas: I'd want to see insider buying. If the C-suite starts buying shares at these levels, that's a strong signal that they think the antitrust risk is manageable. So far, we haven't seen that. I'd also want to see the stock stabilize — establish a floor. When a stock drops four percent in a week, you don't want to catch the falling knife. Luna: Patience is a strategy. Lucas: It is. And in a market that's rotating, you have other places to put money. Chevron, for example, is up almost five percent in a week, and it still yields over three percent. The energy sector is benefiting from geopolitical instability — the Iran situation, the ongoing war volatility — and that's not going away quickly. Luna: But energy is cyclical. If the economy slows, oil demand drops, and Chevron could drop twenty percent. Lucas: True. But the market is currently pricing in a scenario where inflation stays sticky and the Fed might hike rates again in July. The odds of a July hike are rising, as we saw in the headlines. In that environment, energy and banks tend to outperform, and high-duration assets like tech get sold off. Luna: So Alphabet is a high-duration asset — its cash flows are far in the future, so higher rates discount them more. Lucas: Exactly. Alphabet's growth is back-loaded. A lot of its value comes from future cash flows in cloud, AI, and other bets. When rates go up, those future cash flows are worth less today. That's a structural headwind that doesn't depend on antitrust at all. Luna: So we have a triple threat: antitrust, rotation, and higher rates. Lucas: Triple threat is right. And yet, the stock is only down four percent. That tells you how resilient the market thinks Alphabet is. If this were a weaker company, the selloff would be much worse. Luna: So maybe the market is already pricing in a lot of the bad news. Lucas: That's the bull case. The bear case is that the antitrust action is more severe than expected, and Alphabet has to break up or divest key assets. That would destroy a lot of shareholder value. But I think the most likely outcome is a fine and some behavioral remedies — similar to what happened with Microsoft in the early 2000s. Luna: Microsoft survived that and went on to become a three-trillion-dollar company. Lucas: Right. And Alphabet has a similar moat. But the path might be bumpy. For a stock picker, the key is to buy when the fear is high and the price is low. We're not at peak fear yet — the VIX is still relatively low, and Alphabet's drop is contained. But if the stock falls another five to ten percent, it might become a compelling buy. Luna: So you're watching for a catalyst, not just a price. Lucas: Exactly. I want to see either a settlement, or insider buying, or a clear signal that the antitrust case is weaker than feared. Until then, I'd rather own Chevron or JPMorgan in this environment. Luna: Alphabet at three fifty-two — not yet, but on the watchlist. Lucas: On the watchlist for sure. And that's the art of stock picking — knowing when to act and when to wait. Right now, with Alphabet, waiting seems smarter.