Google Stock Will Keep Going Higher, Here’s Why

Welcome back everyone today on the Joseph Carlson Show. We just got through a busy couple of weeks. First of all, just yesterday we had Google and Tesla report their earnings. Google reported incredibly strong earnings, and I have a lot to say about this. We've had so many opinions on Google, both the big bearish thesis that Chachi PT was going to destroy this company. But Google's not only persevering, they're going higher. The stock is trading up today

after trading up into earnings. It's now at a price of $193.00 per share. Google stock is up 13% over the past month, doubling the performance of the S&P 500. And I believe that this one is going a lot further. In fact, after this report, it's become clear that Google's headed higher. The green days don't end today. It is going to continue. I believe Google's headed towards a stock price of $240 per share. We'll see how it goes from the current price to that number.

In this episode. With Tesla stock, things have been a different story. Now this is a stock that I've been critical on and outspokenly critical for a couple years now. Tesla is a stock that trades with an incredibly high valuation, and it trades in many cases off of the back of Elon Musks commentary. He paints a bright picture, but despite the picture he tried to paint yesterday, even despite his best efforts, the stock is still down 9% on the day.

We'll be looking at what went wrong in this earnings report, why Tesla is down so much on the day, and some of the realities that Tesla investors are facing. So we have a ton to get to. Now. To kick things off, we start off

with Google. The big earnings of yesterday was between Google and Tesla. And when we look at Google, this is a company that I've been very bullish on for quite some time. If we look at it, it's been in both of my portfolios, in the passive income account, it's in the tech category and I have $54,000 worth of Google in this portfolio, 5000, 700 of that being gains, so moderate 13% increase in this portfolio. But in the passive income portfolio, Google is a new

holding. So if I bring up the story fund here, this is my smaller secondary portfolio. We have Google as one of the five positions now it's a $41,900 position, but it has bigger gains in this portfolio because again, it's been here a little bit longer, $18,400 in gains. So if we look at both of these combined, Google's around a $90,000 position with a around

$23,000 in the green. So far, it's been a great investment based on when I've bought the company, but I believe there's a lot more to go with Google. Let's go ahead and just bring up the stock here and we can take a look at a couple things. First of all, if we look at the most recent earnings report and the summary of what actually happened, it outlines what's going on with this company.

Qualtrum gives us a summary of the most recent earnings called Transcript, and this really outlines everything that just happened this quarter. If we look at the overall company performance, we can see them highlighting stuff like Google grew record robust double digit revenue growth across search, YouTube, cloud, subscription and devices in Q2 of 2025. Now that's a lot of different business lines to grow double digit growth, but that can't be

accurate, right? We've heard that search is in trouble, that search is a dying business, it's under threat. How could it have grown double digit revenue if it's in decline, if it's being disrupted? If we go back to the insights page here, we have a section where we can look at the revenue by segment. This breaks it all up into the different factions of Google we have here Search. Let's go ahead and just outline this one alone. And search grew year over year

by 11.71%. Now that's an acceleration from the previous quarter. So not only did search grow double digits, but it grew double digits, accelerating its growth sequentially. Google search is actually growing at an accelerated pace. If we smooth this out to a quarterly trailing 12 months, Google search is continually growing quarter after quarter, after quarter after quarter after quarter, so on and so forth.

For around 10 quarters in a row, Google search has grown continually at a pace of above 10%. In most cases it's growing around 12%. Now you've heard this again from different analysts that Google search is in trouble, that's being disrupted. But when you look at the data, you do not see any of that right now. Now, if we go and look at this on a quarterly basis just to see this most recent quarter, we can go ahead and take a look at YouTube.

This is another thing they outline that had robust double digit growth. YouTube grew by 13%. So we have Google Search growing 12%, we have YouTube growing 13%, we have subscriptions growing 20%. So subscriptions counts things like YouTube Premium. So it's a little bit of an overlap between YouTube and the subscription category. But the subscription section of Google, which encompasses lots of businesses, all the subscriptions they sell, is growing 20% year over year.

That's high margin revenue and again, it accelerated from the previous quarter. We have Google Cloud, one of the most preeminent businesses in the world, growing 31 year over year, accelerating sequentially from last quarter. So again, we have massive growth in key businesses in Google. These businesses, cloud subscription, YouTube and search make up the vast majority of Google and combined they're

growing at 15.6%. Now, of course, we're leaving out the relatively tiny business, which is Waymo encompassed in other Bets. You can see it as a tiny sliver here, but we'll talk more about that one in a minute. So we have a differentiation of narrative here. We've heard from many top analysts, many people that

Google is this aging business. It's like an IBM it no longer has meaningful growth drivers, but then the first thing that Google outlines in their earnings report is that they're having double digit robust growth in every core category of their business, including search, which is supposed to be being disrupted. Not only that, but Google is leading in artificial intelligence in many meaningful

verticals. AI is driving major momentum across all business lines with a rapid product releases leveraging alphabets, full stack AI infrastructure, research models and consumer platforms. Alphabet processed over 980 trillion monthly tokens with its AI models doubling the figures announced a few months prior, so doubling the amount of AI tokens in only a few months. Investments in AI optimize infrastructure, TP US GP, U.S., data centers, world class

research. Notably the Gemini 2.5 models and the product integrations are credited as pillars of Alphabet's competitive position in AI. So they have some of the most technologically advanced artificial intelligence infrastructure and models. At the same time, Google controls the entire full stack from hardware to software and distribution. Along the way. Google is a structurally advantage company, not one that's under distress now.

One thing that investors may have argued is that Google's only growing the top line revenue in search because they're just pumping you full of ads and that's all they're doing. They're just increasing the number of ads even though search volume is declining. And that's not the case either. Google management was clear to outline that search delivered double digit revenue growth with strong expansion in both query and commercial activity.

They had strong expansion in query volume, meaning more searches, not just more ads or more monetization per search, but a greater number of searches. This is something of course we've known about for a while because Google has been saying this quarter after quarter after quarter. A few months ago, they released a blog post saying that they've reached all new highs and search

query volume. So anyone that's been bearish on search because of volume declines or advertising declines has not been paying attention to the numbers. Google is growing this business quarter after quarter. Now they highlighted that this new mode, which I'm sure you've tried on Google, you type in a search and if it's a product search, they'll just show you the products. But if you type in a deep question in Google search, one with nuance and context, all of a sudden you'll get an AI

overview. It'll be a text answer that will specifically answer your question. That's AI overviews. Then if you want to dig deeper and have a conversation with Google, you can go into AI mode and ask follow up context questions. That's a new thing that Google just released to everyone and they say that that's driving higher engagement. With over 100 million active users in AI mode in the US and India, that number is going to grow tremendously over time.

So AI mode is really just getting started. The multimodal search experience Lens Circle to Search are rapidly adopted, especially by younger users. Lens search grew by 70% year over year. Circle to Search is now on 300 million Android devices. Virtual try ONS and AI power translation in search is seeing positive user engagement, particularly amongst Gen. Z. They have AI overviews, and this is important to understand what they're saying here.

Anywhere where there's AI overviews enabled, they're getting 10% more queries globally. So anytime that they put this feature in, people increase their usage of Google Search, not decrease it. And that's another narrative that bears thought that AI overviews would cannibalize search. It would reduce the total numbers of searches because you no longer have those 10 blue links. And it's doing just the opposite. People are actually engaging at an increased number with Google

Search, with AI being enabled. So overall, what we're seeing with Google Search, especially with the AI enhancements, is the complete total opposite of what the bears have been telling us. They've been telling us that this is going to cannibalize the business or that the business would shift over to ChatGPT and

other LLMS. But what we see in the data quarter after quarter, after quarter, so on and so forth, for 10 quarters in a row for years after ChatGPT has been released is continual search volume growth, continual engagement, more customers, more revenue, higher ad rates. Everything has grown since these threats have appeared. And this is consistent with Google's long term history. Google has not faced LLMS as the first competitor to search.

They faced many competitors to this business for decades of time and have still grown. Now moving on, we get to YouTube. I've said repeatedly based on Google stock price today, YouTube and cloud, these two businesses combined give you an immense amount of downside

protection. To put this in perspective, if we go down to Google's revenue, we could completely erase search and just looking at the other business lines of Google, this company would likely still be worth its current market cap in around five years. Now obviously in practicality, if Google search really went to zero, the stock probably

wouldn't perform well. But if you actually look at the numbers and what these companies are actually worth, Google Cloud and YouTube are massive businesses. Each one of them are incredibly huge businesses. If you look at what they're producing in and of themselves, they're producing 10s of billions of dollars of free cash flow every year. In five years, YouTube is likely to be twice as big as it is today. Google Clouds likely to be 3 or 4 times as big as it is today.

So both of these are going to be even much bigger businesses in the future. So this gives you a lot of downside protection looking at these two companies. Now, if we look at YouTube's performance specifically, we also saw very strong performance. YouTube saw strong growth, ad revenue up 13% and continued momentum in subscriptions with Shorts becoming a major success.

200 million daily views. I remember when there used to be a bear case that Tiktok was going to steal all the creators and content from YouTube to Tiktok when in reality all it did was encourage YouTube to move into shorts and now Schwartz is a major growth driver for the company. We have monetization of Schwartz now on par with traditional in stream ads in certain regions. YouTube has been leading the US in streaming platforms by watch time for two plus years,

accounting for a record 12.8%. If you listen to Netflix's earnings call, they highlight YouTube as their biggest streaming competitor because by total engagement, YouTube is their biggest competitor. Netflix is trying to figure out ways to take craters from YouTube, but it's very difficult to do. YouTube has a commanding position in streaming on the television, not counting mobile devices, which YouTube is obviously the biggest streamer

on mobile devices. Then we have new AI tools, enhancing recommendations, translation, creative assets, generating for shorts. And you might think these little enhancements are just small things, but many of them are

very big meaningful things. For example, in translations now my podcast and my YouTube videos are translated into like 15 different languages, and we have many viewers now listening to this podcast in those different languages automatically dubbed through AI. That is an incredible enhancement with artificial intelligence. It can grow the audiences of Youtubers internationally without any additional work, without any frictional cost.

I don't have to hire translators because AI is doing that for me. YouTube is now also a massive subscription business. We know that they have well over 100 million subscribers to YouTube Premium, and that number is growing every single quarter. Now we move on to Google Cloud, which is another incredible asset that Google owns. In many cases, Google has done some things that I didn't expect them to do.

I knew that AWS and Microsoft's Azure would likely be in #1 or #2 and I thought that Google Cloud would grow rapidly. But I will admit, I've underestimated how fast Google Cloud would grow, how well positioned they were to take advantage of AI Cloud. Google Cloud posted revenue growth up 32% to 13.6 billion with significant margin improvement, operating margins of 20.7%. These numbers are massive. Let's go ahead and take a look

at them visualized. We can again cross out the other segments and take a look at Google Cloud here. The growth of 31.67% quarter over quarter last quarter and notice the big jump up. This is meaningful growth quarter over quarter. The sequential growth is tremendous. Cloud is truly accelerating because of Google's AI offering and some of the commentary leads me to believe that Google Cloud may actually continue to

accelerate growth in the future. Again, this is a business that Google invested heavily in for a long period of time. It's a very expensive business to start cloud even with the pre-existing infrastructure that Google had. If we look at the amount of employees that Google has hired over the years from 2015 they had 60,000, then they had a peak of 190,000 employees. So massive growth in the number of employees, the huge majority of incremental additional

employees were because of cloud. These employees were here to grow Google Cloud, to build out the infrastructure. And when we look at the profitability, specifically the operating margins of Google Cloud, back in 2019, many investors looking at this company would have seen it as a huge problem for Google. It had -60% operating margins losing billions and billions of dollars, a massive loser for Google. But what does this company do?

They invest heavily in cloud because they can likely predict the outcome over time. They move margins up continually from -60 to -47 to -35 -, 30 -, 20 - 10, and it floats around here for a couple years. And then we enter into positive margin category in Q1 of 2023 from there. Google Cloud finally flips to making profits and now the margins are continually racing up from 17.8% last quarter to this most recent quarter being at 20.7%.

Now it's a high margin, profitable business and most companies would love to just be at 20% margins, but Google Cloud isn't done. This is going to go up to 30% margins and higher. Management noted continually how much demand they have for their cloud products. They said there's high demand for AI products.

The number of $250 million or greater deals doubled year over year, multiple one plus billion dollar contracts signed in the first half of 2025. So we're halfway through the year and they've already reached the record of deals signed that they had in all of 2024. Not only is Google Cloud growing, but the demand is accelerating beyond their growth. They have 85,000 plus new GCP enterprise customers on board in Q2, led by demand for Gemini

powered products. The figure cited Cloud now has surpassed $50 billion in annual run rate revenue backlog of 106 billion, up 38% year over year. They are gaining customers faster than they can even fulfill them. Investments in AI infrastructure, optimized software, agentic tools and deep integration across industries is

also highlighted. Now, one thing I noted right after the earnings report was that GUI initially posted the beat on the top and bottom line and then immediately the stock fell 2% because they weren't generating as much free cash flow because Google is spending so much on CapEx. So Google is now spending a fortune on capital expenditures. And I want to just mention this for a minute.

If you sell a company like Google, because they're investing in more server capacity, they're building out more infrastructure for cloud, I believe that is one of the dumbest reasons possible to sell a company. That would be as though you go to something like Texas Roadhouse. Let's bring up this company here. Let's say that Texas Roadhouse had an earnings report where they said that we have so much demand for our restaurants. We want to build 10 more of

them. We want to build them this next quarter because we just have too many customers. They're lining up out, out the doors. We can't, we can't serve all these customers. So we need more restaurants to build those restaurants. We need $100 million of CapEx, so we're going to invest $100 million of CapEx and build 10 more restaurants. It would be as though investors heard that news and decided to sell the stock. They said, Oh no, I don't want to own a company that has so much demand.

They need to invest more so they can serve more customers and become more profitable. That's essentially what Google investors initially did. They sold the company because of the CapEx headline, not really looking into the reason that Google's investing more CapEx. Google's CapEx was increased not as maintenance CapEx, but as investment CapEx. They're investing far more specifically into Google Cloud, and these highlights here show how much demand this company

has. The capacity growth is ongoing, but the environment remains tight and CapEx is being increased to accommodate demand. So selling Google because the free cash flow has taken a temporary hit due to increased CapEx investment, is just like selling Texas Roadhouse because they have so many customers. They want to open up more restaurants or selling Costco because their warehouses are too full and they want to build more of them.

You don't sell companies because they have too much demand and too many customers. Now Google is a vast business with many different meaningful segments. The next one we get to here is Waymo and other Bets. Waymo expanded operations to new markets. We have Atlanta, increasing coverage in Austin, Los Angeles and the Bay Area and introduced teens accounts in Phoenix. Waymo's autonomous vehicle surpassed 100 million miles driven in public routes. The plans are in place to test

and eventually serve 10 U.S. cities in 2025. So they are testing currently 10 more cities. Investment remains focused on scaling high potential projects with other bets. Every week it seems like Waymo's testing a new city or opening up or expanding new territories, hitting new metrics of the amount of customers served every week and we see this continued expansion. Waymo is the real deal. They are getting people from point A to point B without any type of driver assistant in the

vehicle. Their records are public. Their safety record is public. It is an incredibly safe and expanding operation of a real robo taxi network network. This is the leader in this category. They're expanding quickly with 10 new cities being tested. This company should be worth dozens of times their revenue multiple based on the potential of this business. But if you look at the numbers, Waymo's essentially not getting

any bid at all. It's not really factored into the valuation of Google, even though it's real, it's working and it's growing rapidly. Now when we look at the outlook with Google and what to expect ahead, we just got through another quarter, another one of 14% year over year revenue growth. So a fast growing business. Operating income was up 14%. We have net income up 19% and

earnings per share up 22%. These are great numbers after great numbers after great numbers when we move specifically in the CapEx, this is the number that caused a few investors a little bit of concern. They bumped up their CapEx to $85 billion for 2025. Their prior guidance was 75 billion. So they're bumping up their CapEx guidance by $10 billion. And they noted this is likely to increase in 2026, primarily to expand technical infrastructure supporting cloud and AI.

When you have a cloud business like Google growing 32% year over year, gaining multiple $1 billion deal contracts, growing the amount of contract volume by 38%, that is something that you have to build infrastructure for. This is an incredibly important business, and Google's doing right to invest in this business for the future.

It's the same thing I want to see with Microsoft and the same thing I want to see with Amazon. We have free cash flow for the quarter being impacted by this higher CapEx and a tax payment ending with $95 billion in cash and marketable securities. So they have a ton of cash on hand and they had someone time expenses, specifically legal expenses. So we have all of that going on with Google.

Overall, this was a master class of an earnings report, yet another earnings report where Google shows that it's not a distressed company. It's not one that's going through immense amounts of trouble. It's one that's off to the races. They are moving ahead. They're growing revenue in key territories. They're investing for the future. They're leading an AI. They're maintaining their market share. They're producing more and more net profits.

They're the most profitable net income company on the planet. Yet there's many people, many investors and analysts, they still have tried to portray this company's struggling for the past six months. In fact, they've tried to stoke fear in this company, repeatedly telling you that Google's distressed, that it's in trouble when it's not. And many of these investors have different motives.

Here I want to highlight a couple investors and analysts that have continually trashed Google over the past six months, stocking fear in the company, talking about how ChatGPT is going to kill the business. The first one is Gene Munster. He was interviewed closely after Google's earnings report and he completely swapped his thesis on Google after spending months on end appearing on TV stocking fear in Google, investors talking about how you should avoid this company at all costs.

Here's what Gene Munster has to say. So that was a surprise. They also mentioned on the call that paid clicks were up 4% year over year and just a really shocking number. If we rewind back to the first part of May when you know Apple, what EQ is talking about, this decline in search within Safari, it would be hard for me to have imagined that paid clicks are going to be up 4%.

So when I put all this together, Melissa, somebody like myself who's been bearish over the last six months, I'm in the camp that this stock is probably going to move meaningfully higher over the next few days, 510% higher, in part because we should have seen something this quarter given everything that's going on. And what we should have seen something happen this quarter given everything that's going on. But we didn't.

And when he says we, he's referring to the Google Bears, the ones that have been espousing how the search business is in trouble, the ones that have been warning you about Google despite all the positive qualities of it. Gene Munster has now flipped his thesis on Google, and he's bullish on the company now, saying that it's going to go up another 10%. Based on this report, the bears are giving up. The thesis that they have that ChatGPT is the destroyer of Google is simply just dying.

It's dying in front of our eyes. That thesis has lived for years now, and we're finally seeing the tail end of it. We're seeing the biggest bears, the biggest promoters of that thesis start to give up and capitulate. They're starting to turn on a dime now, going from bearish on Google to bullish. And Gene Munster is not the only

one. One of the biggest bears on Google, someone that has repeatedly stoked fare in this company is also an investor in Open AI, which is the owner of Chachi PT, is Brad Gerstner. Here's some of the things that he told us over the years. Google has been a monopoly, a tax collector on everything on the Internet for 20 years, OK. And they have monopoly pricing on search and so that they are

the verb that collects the tax. And what I said was that the culture at Google had evolved in such a way that it had become more of a research institution than a product LED growth institution. They weren't delivering products and as a result of that, people were leaving the organization. So what is the verb in the age of AI? Do you Bard or do you ChatGPT? GPT has become the default verb for all things AI. And to relinquish that spot by

letting open AI go first. When you had the technology, you had the supercompute and you had the capabilities to release that product, I think was a mistake. This wasn't only one appearance, or even a couple appearances. Brad Gerstner went on to mini shows over and over again, repeatedly pumping open AIA company he's personally invested in at the expense of Google, in the process sowing concern and fair with Google investors. Google was the only game in town.

Now we know search is being replaced with a new form of information discovery and all. I'm saying because even if they emerge as the leader in this thing, they will not have as much share of the pool of profits as they have in search. It's almost impossible for me to see how they replicate that. Now I also have concerns about how they're operating the business, how they're slow and releasing products, the cultural

challenges they have. I think they have challenges around the TPU versus the GPUs of NVIDIA, but I, I will stipulate that they get all of that fixed. I still don't think they can replicate the monopoly. This is at a price point of $130.00 per share and Google's currently right on the verge of passing $200 per share. Even more recently, Brad Gerstner has continually done things on social media like said how many people in a classroom

use ChatGPT or Google Search? Every kid raises their hand saying that they use ChatGPT. He used these anecdotes as evidence that Google Search was dead. He also continually and incorrectly referred to Google Search as a 10 blue link website. Always speak the truth, right? I don't think 10 blue links is the future. Do I think it's going away tomorrow? No. But I just look at the behavior of people.

We do lots of survey work on this, Scott, people are turning to ChatGPT, they're turning to Claude, they're turning to why are we so excited about Apple Intelligence? Because people are going to turn to Apple Intelligence instead of 10 blue links to find answers to the questions they have. Multiple times he references Google as a 10 blue links website when Google hasn't been a 10 blue links website for

years. You can search almost anything into Google, whether it be travel information, looking at movies, finding destinations, looking at stores, and Google provides you vastly more information than 10 blue links. This false portrayal of Google search compared to ChatGPT was what was continually shared online by many of the most preeminent tech investors. But even during the time that this was shared, Google search continued to grow in query

volume and in revenue. We also have Qatal Management with Philippe Lafont, one of the preeminent tech investors. He's ran this massive fund for decades now and they released a list called the Fantastic Forty. The Fantastic Forty Growth and Innovation Index is the Qatar curated list of 40 companies best position to lead an artificial intelligence technology driven in the world by 2030.

So this is a list of 40 of the top AI companies in the world according to this leading tech investor group. When you look through the list, you'll see many great companies, Microsoft and NVIDIA. You have Alibaba, you have Salesforce, you have Spotify, Shopify into it. I own a lot of these stocks. We have ASML, we have Netflix.

These are great AI companies. But there's one notable omission, 1 notable company that's just simply missing from this list, Google. Google is the most meaningful absence from this list a company that has the leading AI models is not in the list of leading AI companies to 2030. Now we can speculate on the reason that Google was omitted, but I can't imagine that their investment in open AI didn't play a specific role. Google's being left out of many

of these lists. They're not being mentioned on many podcasts. Many retail investors are getting the wrong impression that Google has been in trouble for a long period of time when none of the data has shown that. Now, after Google posts another incredible earnings report showing that none of the concerns about their disruption or problems have existed in the numbers whatsoever, we have to tell social media trying to play revisionist history another AI

inflection point. Googles monthly token usage just jumped 480 trillion to 980 trillion in two months. That's the same growth it took 12 months to achieve prior. We're not linear times anymore. Now suddenly Cattell is all for Google. And in the comments section, after being called out for this many times, they're now asking other people if Google should be on the list. No longer are they the experts. The people in the Twitter

comments are now the experts. And now that the company is irrefutably performing well and the fundamentals prove that, without a doubt, you're going to see a lot of them pretend like the past six months never happened, like they never held any bearish stance on the company, that they've always been invested in it. But don't let them paint the revisionist history on this company. Retail investors overwhelmingly have been bullish on Google, and

they've been correct. Retail investors do have an edge in many cases over institutional investors, and top analysts don't get the impression that because they have more resources, they can make better judge decisions than you. Anybody that's been able to look at a revenue breakdown of Google has clearly seen that the ads business has been just fine for

a long period of time. All we're doing is pulling together and extrapolating growth from a business that says it's continuing to have increased usage and engagement. The people that rely on anecdotes saying that because their nephew only uses ChatGPT, therefore everyone in the world is switching from Google to ChatGPT haven't been correct. Anecdotes are just that. They're anecdotes. Data, Simply put, is just a lot of anecdotes.

When we look at Google search continued usage and growth, that is hundreds of millions of anecdotes being put together in a line chart. And that's what we're seeing here. Now, while I've highlighted a lot of investors that have got Google wrong over the past six months, I do want to give credit to 1 investor that's been spot on with a company, 1 rare analyst that's been continually bullish on the company despite his peers being bearish.

Mark Mahaney has gone out on a limb and been very bullish on Google. Even when the company's stock price is going down and it appeared as though Chachi BT was gaining a lot of market share, he still withheld through the pressure of that and continue to be bullish on this name when few others were. This is this is this has been and remains our top pick in large cap Internet. It's still trading at 18 times earnings.

So it's trading at like 7 multiple points cheaper than Meta and it's still at a slight discount to the market for the search leader, the YouTube, you know, the, the company that owns YouTube Cloud has got this Waymo asset. I, I, I still think it's the, the evaluation is highly attractive. Fundamentals came in better than expected and expectations were rising. I think there's, I think it's, there's two kind of broader things that are the three things that are happening here.

First is the ad market is kind of held in better than we all feared 3 months ago. Second, cloud market just continues to get stronger with all of this AI, generative AI demand. And then third, did Google is just executing well, give them credit for it. They're at record operating margins even though depreciation is rising because of this big Capec cycle. They've been very consistently managing down or flattish their headcount and so they're showing a lot of cost discipline.

I think the story is just getting stronger and I continue to like the stock. The thesis is Google's cheap and it has a lot of great businesses, something that many retail investors have inherently understood for a long period of time. Mark Mahaney's simple thesis was right, and I believe he deserves some credit for that.

Now looking at Google, this is a company where again, we can look at it moving up. Over the past month, it's moved up around 13%, doubling the returns of the S&P 500 for the past 30 days. So Google's going through a nice recovery from the lows of 146 earlier this year. Now we're getting back up to around $200 per share. Investors that bought the dip are doing well, but I believe there's more to go with this one. First of all, the PE ratio based on next year's earnings is a 20

multiple. Now what I believe is going to happen is analysts will move their expectations up for next year's earnings over the next four quarters. So when they move their expectations up for earnings per share, the Ford PE is actually going to go down. It's going to be closer to an 18. You should see that reflected in Qualtrum in the next day.

So you'll see around an 18 Ford PE ratio for a company that's having this much growth, this growing 14% per year, growing earnings 20% per year, that is far too cheap for a company. The stature of Google. When I do analysis on different companies, I believe ones like Google should be at a 25 PE ratio minimum. So if we bring up Google here on the DCF tool, we can take a look at some assumptions.

If we assume Google will grow its earnings per share growth at a 15% earnings per share for the next 5 years, which is far slower than how they have been growing, and we assume the appropriate PE ratio is a 25, which is not unreasonable, Google should trade at a 20, 25. That leaves us with an 18.3% compounded return over the next five years. The share price would be $451 in Q1 of 2030.

With these very conservative assumptions, that is an incredibly good return for a five year period with very conservative estimates. Now we don't know exactly how fast Google will grow. Maybe it's a little bit below 15%, maybe it's a little bit above 15%, but either way, we have market beating returns with this stock, which is why I believe Google stock deserves to trade much higher today based on its outlook and the fundamentals of the company.

I believe today's share price should be around $240 and I think there's a chance we get there by the end of this year. There's no guarantees in investing, but there's every reason to conservatively believe that the stock is worth this price. So I'm going to hang on to my shares. I'm very bullish on Google. I'm getting more bullish every single earnings report, and I look forward to the next one. Now moving on, we get to Tesla,

which is a stock I don't own. And in fact, I've been criticized as hating on the stock for years. And that's true. I have been highly critical of Tesla stock for a number of years because I don't believe that Tesla investors have fully come to terms with the situation of fundamentals of this company. Now, Tesla did give us more insight into the fundamentals of their company yesterday when they reported earnings. The stock is now down 9% after

earnings. And if we split Tesla in the two different categories, we can look at the fundamentals, what actually happened, the numbers of the company, and then we have the narrative. The narrative is what's going to happen in the future. All the promises and bright future that Elon Musk has painted. We have those two different parts of the company. Well, first take a look at Tesla's numbers and just focus

on the numbers for a minute. Total revenues of the company was $22.49 billion, which is a 12% decline year over year. Let me just repeat that. It was a 12% double digit decline in revenue year over year. So we have a company like Google growing revenue 14% that trades at a 18 PE ratio. Then we have Tesla that has revenue declining 12%, trading at APE ratio currently of 136. That's the tale of two different stories here and that is my

problem with Tesla stock. It is a comparison of the valuations, the future expected returns and the current numbers they're posting. When we look even closer at this, we see more problems that Tesla's facing with their business. We not only have total revenues declining by 12%, but we have operating expenses remaining about the same business that has flexible cost structure. We should see the total expenses decline as well.

This means that the operating margins went down by 219 basis points, a 42% decrease in income from operations this quarter was $923 million. We have four quarters ago 1.6 billion. So we have declining revenue, declining margins, declining income from operations and these aren't small declines, these are massive declines. We have the Adjusted EBITDA of the company, this declined by 7%. We have the earnings per share gap of the company declining by 18%, the non GAAP earnings per

share declining by 23%. Every single number so far is moving in the wrong direction. We have the income from operations down by 30% and the free cash flow down to $146 million. You may chalk this up as temporary. The problem with Tesla is these numbers have been relatively the same for a number of years. We have Q4 of 2022, the trailing 12 months of revenue of around $80 billion. It went up to a high of around 90 billion, and now it's traded back down to just above 90

billion. We have the same revenue today that we had in early 2023. This is flat revenue for over 2 years now. Tesla investors are waiting for that parabolic spike in revenue like they had in 2020. Maybe that's just around the quarter, but so far we haven't seen it. And there's also reason to believe it's not happening anytime soon.

We can see the same thing with Tesla's free cash flow, with their EBITDA numbers, with lots of different metrics that look around the same as they have for the past couple of years. With Tesla investors knowing that the fundamentals are moving in the wrong direction, that leaves them with the narrative. The narrative is what you're investing in if you're buying Tesla. The narrative is what justifies

the 100 plus PE ratio. The narrative that Tesla will be the biggest robotaxi company in the world, having massive market share and profitability, and it will be the company that designs the humanoid robot that the rest of the world uses. On the call, Elon Musk tried to push this narrative as much as possible. The autonomy and robotaxi launch, Tesla said, was successful. It launched its first robotaxi service in Austin with paying customers experiencing fully autonomous rides.

While that's true, many of their paying customers, in fact almost all of them, are Tesla influencers, people specifically sent there to take videos of it and kind of show off the service. These weren't everyday people using it as a normal service like you see in California with Waymo. These were investors in Tesla.

The service area in Austin is expanding rapidly with plans to cover more than 10 times the current region soon, and the company aims for hyper potential growth in both service areas and vehicle count. They're aiming for hyper exponential growth in both services and vehicle count. That's what we've been told is that they're going to grow exponentially. All of a sudden, Tesla robo taxi will be everywhere fully operational.

The regulatory approval process are underway in states including California, Nevada, Arizona and Florida with the goal of covering half the US population by year end subject to approvals. Now again, this is a very bullish part of the narrative. They want to cover half the US population by year end. That's a very short amount of time, six months. To cover over half the population is is very ambitious. There's one little caveat which

is subject to approvals. So if this doesn't happen, they can always blame the regulators that they're just not giving them permission. There's a lot of red tape and it's the bad approval process from the government. Now when we go on with this, we see safety being a priority over speed of roll out with initial deployments closely supervised and gradual relaxation of driver attention requirements as

confidence in safety grows. O right now Tesla has employees in each of their robotaxi vehicles. The employee sits in the passenger seat, but the employee has the ability to stop the car at any point, and they have exercised that ability multile times, which could have revented many accidents. Tesla wants to get to a point where they can get rid of that employee, where the car can drive itself without the need of such oversight.

They haven't done that yet, but again, that is the narrative in the future. And they also had the first delivery of a vehicle that autonomously drove itself from the factory to the customer's house. I think that's a a cool thing, but I don't believe that's a big growth driver for the stock. Overall, we have the narrative of the autonomy. We have very ambitious goals, but lots of caveats and exceptions. Things are subject to approval. Things are subject to confidence

in safety growing. They're aiming for hyper exponential growth, but there's just a few things that may get in the way. Next we get to the other big bullish point of Tesla, which is the optimist humanoid robot. Optimus Version 3 is nearly finalized with no major design changes anticipated. Prototypes are expected by year end in 2025, Production to start next year.

Ram U will be slow due to new supply chain process uncertainties, but Tesla's targeting production of 1,000,000 units annually within five years. We have another five year timeline by a brand new product of Tesla, which have been repeatedly wrong over the past decade. Tesla has continually pushed out things much longer than they're given timelines. You can look at Full Self Driving and Robotaxi as an example, but Tesla's saying they'll have the humanoid robot

in production 1,000,000 a year. In five years. Optimus will eventually contribute to maintenance and cleaning of autonomous vehicles and broader factory applications. Tesla believes that Optimus will become its largest product line and is an exquisite design, applying lessons from real world AI and vehicles to humanoids.

So they're talking about the Optimus humanoid robot, which we've seen examples of this, but so far the Optimus robots have been teleoperated, meaning there's someone in AVR headset or something similar moving the robot around like you would control a tractor with hydraulics. So Tesla has a lot to accomplish with this ambitious goal. And they're not the only ones working on humanoid robots.

There's other companies that I believe are far better position than Tesla, like Amazon, currently working on humanoid robots. So there's more than one company that can benefit from this, but Tesla is trying to portray the vision that they're going to be the preeminent leader in humanoid robots. When I look at Tesla, I think this is just a very, very difficult stock. Investors in Tesla will say that I hate on the stock, that I hate Tesla, and that's not the truth. I don't hate Tesla.

It is a stock. It doesn't know that you own it. If you're a Tesla investor, that's not your identity. Investments are to make money and we should invest in things that have good risk adjusted returns. When I look at Tesla, my honest opinion is that it's an incredibly difficult, unpredictable stock that has a lot of downside risk. That's the way that I view it, and I look at that through a lot of different metrics.

When we look at a company like Tesla, the bowl case for the stock, the bowl case that people like Dan Ives and many other people on TV have outlined for this company, the bowl case is to ignore the PE ratio. Just forget about it. Don't look at the 100 plus PE ratios. Ignore the price to sales, just forget about that. Ignore the amount of free cash flow the company generates relative to its share price and the market cap price.

Completely ignore the fact that Tesla generated $146 million of free cash flow last quarter, which is about as much as Texas Roadhouse, a $10 billion company, generated. So you have Tesla, a $1 trillion company, generating as much money as a $12 billion restaurant every single day of the year last year. All 365 of them. Google generated more in free cash flow than Tesla did last quarter, and the bull case is to ignore that. The bull case is to ignore the fact that deliveries are

declining year over year. They've been in a downward trend from Q4 of 2023. The bull case is to ignore the EV tax credits and other incentives that have buoyed the stock for the past couple of years that are now going away. The bull case is to ignore the operating margins of the company that are lower than most restaurant operating margins.

The bull case is to ignore the fact that Waymo has a bigger commanding lead in robotaxi, the very business that Tesla's supposed to be the leader in, and that Amazon is better positioned in humanoid robots than Tesla. The bull case is to ignore all of that data and just hope that Tesla does well in the future. Just hope that the company can have astronomical growth. I don't invest in things based off hope. I invest in them based off of well grounded fundamental research and reasonable

valuations. I invest in compounding machines that can grow year after year, very predictably. There's no hope involved, and there's no ignoring all fundamentals related to the company. So if you want to invest in Tesla, that's fine. No one's going to stop you. And I certainly don't hate you for choosing a different investment than me. But my perspective is investing in highly predictable companies with reasonable valuations, strong fundamentals, and a

proven track record of growth. I also like investing in companies that outperform expectations, not ones that continually come under expectations with Tesla. Maybe this company will make it all worth it. Maybe the bulls will eventually be correct and Tesla will become the biggest winner of the robotaxi and humanoid robots, and it will generate trillions of dollars of wealth. That could possibly happen. But I think the chances are very

small. And I think there's a lot of risk inherent to this investment. Risk of continued trudging water for year after year, quarter after quarter, waiting for the narrative to play out, which eventually doesn't come to fruition in the same way that investors imagine now. If the circumstances and data changes, if I see new evidence that makes me change my opinion on Tesla, I'll let you know. That's going to be it for this episode. See you in the next one.