To The Moon

“The AI Capex Paradox: Will Google’s $90B Bet Pay Off Tomorrow?”

Executive Summary

Alphabet reports Q3 2025 earnings after market close on Wednesday, October 29. With shares at $269.93 (Monday close) and trading near all-time highs, the bar is high.

Base Case (65% probability):

• Beat & Raise on Cloud and AI momentum

• Stock Target: $285–$295 (+6–9%) within 72 hours

Bull Case (20%):

• Cloud >$15B, AI revenue >$3B, capex guided down

• Target: $305+ (+13%)

Bear Case (15%):

• Cloud margin compression, AI ROI scrutiny, capex up again

• Target: $245–$255 (-6 to -9%)

The Core Thesis: Alphabet Is Not Just an Ad Company Anymore — But It Still Is

Let’s be clear: ~78% of revenue still comes from advertising. But the growth engine has shifted.

Insight: Cloud will grow 3.3x faster than ads. This is no longer a “Search monopoly” story — it’s a cloud + AI infrastructure play with an ad moat.

Deep Dive: The Three Drivers That Matter

1. Google Cloud — The $100B Runway

• Market Share: 11% → 12.5%+ in enterprise cloud

• Key Wins:

  Anthropic (Claude) now runs exclusively on Google Cloud /

  Major deals with Salesforce, Shopify, and DoD /

  Vertex AI adoption up 400% YoY (internal metric leak via X)

• Margin Path:

  Q3 2024: 12.1% /

  Q3 2025E: 16.8% — despite $22B quarterly capex

Verdict: Cloud is underearning. At 35% growth and improving margins, it should trade at 12–15x sales, not 9x. That alone justifies $40–$50/share of upside.

2. AI Monetisation — It’s Happening, Quietly

Forget “AI Overviews killed traffic” FUD. The data says otherwise:

• Gemini Ultra ($20/mo) now has a higher ARPU than YouTube Premium

• Search Generative Experience (SGE) increases session time by 28% → more ad impressions

Insight: The “AI cannibalises ads” narrative is dead. It’s an ad volume multiplier.

3. Capex: The $90B Question

Alphabet guided $85B capex for 2025. We expect $88–$92B — and that’s good news.

• Efficiency improving: More GPUs per dollar (Blackwell, TPU v5)

• Utilisation up: Cloud data centres at 82% capacity (vs 68% in 2023)

My View: High capex = high future cash flow. The market is pricing an “AI bubble” — but Google’s spend is revenue-generating, not speculative.

Valuation: Where Should GOOG Trade?

→ Fair Value: ~$340–$350

→ Current: $3.35T market cap → $270/share

→ Upside: +26–30%

Post-Earnings Price Scenarios

Final Call

Buy the fear, hold the conviction. Alphabet is in the second inning of a multi-year AI infrastructure buildout. The ad business funds the future — and the future is Cloud + AI.

Earnings Call Bingo Card (What to Listen For)

• “Vertex AI pipeline now >$10B annualised”

• “AI Overviews now in 40%+ of searches”

• “Capex peak in 2026, FCF inflection in 2027”

• “Waymo robotaxi fleet >5,000 by year-end”

Stay truth-seeking. See you on the other side of the print.