Google Q424 Earnings Recap & Mini Primer (TPU, deepseek etc)

To spend or not to spend $75B in AI, this is the question.

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We will start with a quick Google/Alphabet overview (including mini primers on search, cloud and TPU) and then we will dive into the key debates, deepseek implications and my valuation framework with buy/sell price.

Google stock was down 7% after earnings on Feb 4th and hasn’t recovered since (down 10%). What happened?

On a high level, results are fine.

1. Total company revenue beat consensus ($81.6B vs cons $81.5B),

2. Search revenue was good (grew 13% year over year vs consensus 11%)

3. YouTube revenue was also decent (grew 14% yoy vs cons 11%)

However, Google also missed vs expectation on several other metrics:

1. Cloud revenue growth is a bit light due to capacity constraint. Cloud growth decelerated from last quarter (35%) and grew 30% yoy (vs consensus 32%)

2. Huge capital expenditure guidance. Google guided capital expenditure of $75B in 2025 (vs consensus forecast of $60B).

These 2 points are also related in some way and point to a unifying big picture concern that investors have:

That is, will Google be able to maintain its leadership in ads and will cloud growth reaccelerate against competition? Can they successfully monetize on their AI products including AI Overview after investing billions of dollars in AI infrastructure build?

If there is ONLY one thing that public market investors care about, it is Return on Investment (ROI).

A Quick Alphabet Overview. A Tale of Two Businesses - Services & Cloud

You probably are already very familiar with Google, either through Google Search, Google Maps… but Google is more than that.

Officially, the ticker GOOG refers to Alphabet, which is a collection of businesses. The largest is Google and they put everything else under “Other Bets”. Within Google, there are two segments, Google Services and Google Cloud.

Google Services include products and services such as Google Maps, Search, YouTube and others. Google Services contributes to 88% of total Google Revenue today.

Google Cloud is mostly infrastructure and platform services, applications, and other services for enterprise customers. Although Google Cloud remains a big focus for investors, it only generates about 12% of total company revenue today and only 6% of total operating income.

While Google Services come in different shapes and forms, they share one commonality in terms of business model. Google Services generates revenue primarily from advertising or fees received from consumers via subscriptions (YouTube Premium, Google One etc) and in-app purchases.

The content below is for paid subscribers only. We will discuss Google’s business model by segments in more depth and will provide a useful valuation framework with buy/sell price. You will also have access my past company primers here including one on deepseek. For a free sample, you can read my AMD deep dive here. Subscription only costs 2 cups of coffee. Trust me it will be worth it.