Alphabet Reports $514 Billion Backlog in its Cloud Segment

Parkev highlights Alphabet's exceptional financial trajectory, noting that the company has quadrupled its revenue over the last decade. In the most recent quarter, Alphabet reported $120 billion in revenue, growing faster than Microsoft but slower than Meta. Parkev emphasizes that the company is achieving record-high operating profitability at 34% and a return on invested capital of 46%. Parkev also points to a massive $514 billion backlog in the cloud segment as a sign of future strength.

Parkev addresses the volatility and uncertainty surrounding artificial intelligence, noting that investors are concerned about LLMs cannibalizing Google Search. However, Parkev argues that the current ad-free nature of LLMs like ChatGPT is unsustainable due to high computing costs. Parkev expects these platforms will eventually need to introduce advertising or fees, which could drive users back toward traditional search. Furthermore, Parkev praises Alphabet's internal development of proprietary chips (TPUs), which helps manage the high capital expenditures required for AI infrastructure.

Regarding valuation, Parkev notes that Alphabet's forward P/E ratio of 23 is low compared to its historical average of over 30. Using a discounted cash flow model, Parkev values the business at $361 per share. Since the current market price is approximately $345, Parkev considers the stock to be within a 5-10% margin of safety and maintains a high-conviction buy ranking for the stock.