**Alphabet reported excellent results for Q4-2023**
Overall top line revenue of $86.1Bn grew 13% – third quarter of revenue growth after dipping in 2022.
**Cloud roared back to 26% growth at $9.19Bn after a muted Q3** \- that should dispel any notion that Google Cloud can’t compete with Azure or AWS, or simply doesn’t have the AI tools. It implies that Google Cloud is just crossing above a $36 billion annual run rate. Margins improved – operating margin in Q4 came in at 9% compared to 3% in the previous quarter and (0.2%) in Q4 last year.
Google Cloud is continuing to close this growth rate gap with Azure, and may surpass Azure leveraging AI. Like AWS and Azure, Google Cloud is seeing strong momentum with AI products, which is helping it win and upsell deals. Management said that the “strong demand we are seeing for our vertically integrated AI portfolio is creating new opportunities for Google Cloud across every product area,”
CEO Sundar Pichai said that “greater than 70% of gen AI unicorns are using Google Cloud,” and customers including Anthropic and Mistral AI are building and serving LLMs on Google Cloud’s AI Hypercomputer, which combines Google’s “TPUs and GPUs, AI software and Multislice and Multi-host technology to provide performance and cost advantages for training and serving models.”
**Is Alphabet monetizing AI? Yes**
1. Google Cloud is charging $30/month via subscriptions with Duet AI and management noted that customers are “increasingly choosing Duet AI” to “boost productivity and improve their operations.” This is a competing product with GPT 4 – Duet AI will incorporate Google’s Gemini, its multi-modal family of LLMs developed to challenge OpenAI’s GPT-4. Google Cloud “is intensely focused on bringing the benefits of Gemini” to its cloud customers, and the rollout of the top iteration,
2. Gemini Ultra, at a $20/month subscription could help Google gain share away from OpenAI and thus Azure while increasing revenue.
You Tube, which grew at 16% was also slightly better than expected at $9.2Bn
**Net Profit jumped 52% to $20.69 billion, or $1.64 per share, (This was in spite of $1.2Bn severance charges)**
Subscriptions are a $15Bn business now, led mostly by You Tube.
**Alphabet is an extremely profitable company, it has an operating profit margin of 27%! — that too after all the massive spending on other bets such as Waymo, CAPEX on Al, etc.**
Alphabet’s earnings should double in the next 4 years to about $10.50 – an 18% growth.
I believe it is definitely worth buying at a P/E of 21. The Price to Earnings Growth ratio (PEG) is just 1.17 – that’s nothing for a market leader, $342Bn behemoth, with a search engine monopoly, and a very strong presence in AI and Cloud.
