It’s been quite an eventful earnings season for mega-cap tech. For the most part, the showings were impressive, but there is one result that stood head and shoulders above the pack in the Mag Seven. Of course, that’s Alphabet (NASDAQ:GOOG | GOOG Price Prediction), which clocked in growth figures that were so good that investors probably cheered the higher CapEx.
Even if the other Mag Seven results were decent, there’s no question that the Alphabet quarter made the rest of the Mag Seven, perhaps other than Apple (NASDAQ:AAPL), which reported very strong numbers itself, look bad in comparison. Any way you look at it, Alphabet is showing the hyperscalers how it’s done. It’s a high bar that’s set, and I do think that all other big AI spenders are going to be judged by the new standard that the $4.64 trillion icon set.
In any case, Alphabet had the essential ingredients needed to thrive in the AI revolution. And while I do think the post-earnings sell-off in some of the other Mag Seven names is unwarranted, given they will, in due time, find their way into the AI monetization fastlane (they’re already in that reasonably-fast middle lane, at least in my opinion).
Alphabet is finally getting rewarded for the results. Its moats were there all along
In a prior piece, I outlined three pillars (or ingredients) that I viewed as economic moats for the AI age. And while the easy gains may have already been made in a name like Alphabet, which I predicted would become the world’s largest company just last year, I still think selling out of a 135% gain in the past year could mean missing out on a whole lot more, especially when you consider the fundamentals have arguably improved at a greater pace than the valuation.
At 29.2 times trailing price-to-earnings (P/E), I still consider Alphabet shares to be cheap. Maybe it’s a bargain after that shocker of a quarter that seemed to surpass everyone’s expectations. Anyways, back to the essential drivers, moats, drivers, pillars, or whatever you want to call them: data, physical infrastructure, and automation potential, I believe, remain key tickets to dominance in the next stages of the AI revolution.
Alphabet stock still doesn’t look priced with AI dominance in mind
Of course, an obvious AI winner that possesses all three moats is Alphabet. It has a wide data moat, which will come in even handier as Gemini and agentic AI become more personalized. It also has the physical moat, with its TPU-equipped AI data centers that could take Google Cloud Platform to even greater growth. And, finally, it has the means to lead the digital labor revolution, which entails automation, given that a reported 75% of new code is being generated by AI.
That’s a jarring figure. And while Google might not choose to automate, it’s the work the firm is getting done with AI that’s most important.
The firm is using AI to code, and as that AI-generation figure goes higher, I think Alphabet may very well boast some of the widest AI moats out there. It’s part of the reason why I think Alphabet will become the world’s largest company soon and why the name might still be undervalued by investors, even after a quarter that showed its AI spend is working, not only well, but fast.
Oracle also fits the bill as having wide AI moats
Aside from Alphabet, a lot of the Mag Seven members, as well as the AI IPOs to come, have such wide moats.
Beyond the Mag Seven, Oracle (NASDAQ:ORCL) stands out as a firm that has since widened its physical moat with its ambitious data center buildout. Perhaps Oracle serves as an example of a company that’s pivoted in a way to drastically widen its moat where it matters in this stage of the AI boom.
It wasn’t easy, and not every investor was on board with the shift towards becoming a physical infrastructure titan, but the firm made the bold move, which I think we’ll look back on in three years’ time. Whether Oracle stock will be at new highs by then remains the trillion-dollar question.
It may have taken big cuts to the workforce to shore up cash to go heavy on AI CapEx, but I do think the move will be worth it in the long run, considering the enterprise juggernaut also has a sizeable data moat and automation capacity given the firm’s agent-first mentality.
Oracle isn’t just another hard-hit software company, even though it might look priced as such; it’s a rising star with all the ingredients to win in the next phase of the AI boom.
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