Google’s latest moves rock AI and chipmakers ͏ ͏ ͏ ͏
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Dear Reader,
Happy Monday.
Today I want to talk about Alphabet (Google), and the coming chip wars
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First, some background, okay?
I’ve been watching Google (SYM: GOOG) for a while.
Everybody watches Google.
We recommended Google at $202 in August. Now it’s at $320. A 50%
gain. Yippee!
But that wasn’t like a 10-bagger.
That was a “revaluation trade.”
A _revaluation trade_ is something that happens when a new set of
circumstances takes an existing company and makes you revalue its
future cash flows or its prospects.
The revaluation trade with Google was, once the Justice Department
lost their case when the judge decided there’s enough competition
for Google out there as it is and that the company didn’t need to
break up…
It was a high probability bet that Google would start marching higher,
and it did.
So for us, that was just a revaluation pick.
You’re not going to get rich off a trade like this one, but it’s a
good way to make easy money.
In my career, I’ve observed this over the decades.
It’s actually ironic because _had_ the Justice Department broken
Google up, each of the individual parts likely would’ve been valued
much higher.
History tells us breaking up a monopoly unlocks a lot of shareholder
value.
But, the Justice Department decided Google is not a monopoly - that
they have too much competition.
And you know what?
When you look at OpenAI, OpenAI’s ChatGPT has 800 million weekly
active users. Google’s Gemini has 650 million monthly active users.
(Google reports monthly, OpenAI reports weekly).
Google just came out with their new Gemini 3.0 AI chatbot, and I’ll
tell you - while the parade was happening on Thanksgiving, I was
testing it compared to ChatGPT - running both to see which one was
better.
I’ll tell you something - this Gemini bot is no joke; this “Nano
Banana,” or whatever they’re calling it - it’s a really cute
nickname.
Anyway, back to semiconductors and chips…
Remember last week I was telling you that Nvidia has 33% margins on
its chips, which is an abnormally high profit margin?
And that companies don’t keep 33% margins for long, because when
other companies see that, they start chipping away at that company’s
dominance until those margins go down to more normalized levels (you
may remember the average profit in America is about 12%).
This is the nature of competition.
This is what will happen to Nvidia.
It’s what happens to everybody.
It’s just the way it goes.
So, last week it was announced that Meta, another one of the companies
in our model portfolio, is thinking about spending tens of billions of
dollars on Google chips instead of Nvidia.
And it’s interesting - now, all of a sudden, in the past week with
their new Gemini chatbot, Nano Banana, and with this announcement
they’re selling chips, it’s like Google has opened up two fronts
against OpenAI and against Nvidia, _and they’re doing it really
well._
So, you gotta think to yourself…
_Kudos to Google/Alphabet!_
Those guys were caught flat-footed on the whole OpenAI/chatbot thing.
And you know what?
They weren’t really part of the AI conversation.
People were making fun of them.
And all of a sudden they kept their heads down.
This is a proud company. And they understand you don’t talk with
your mouth. You talk with your actions.
You know what I mean?
You can preach a better sermon with your actions than with your words.
This is a life lesson I try to tell my kids all the time.
So they put their heads down and worked through it.
They spent the last year-plus grinding, working, not really yet part
of the AI conversation.
And then all of a sudden last week, _BANG!_
Really, they got the ball now.
Their offense is driving it down the field. Which is great.
This is what I love about business.
So now Google is getting known for selling chips.
_Holy mackerel._
Isn’t that interesting?
They’re threatening _Nvidia_. What a powerful company to be able to
do that.
Now, remember a couple months ago we started talking about
“Nvidia’s Secret Supplier?”
I’m going to let you in on something here - we should really rename
that from “Nvidia’s Secret Supplier”...
To “Google’s Secret Supplier”...
“Microsoft’s Secret Supplier”...
Qualcomm’s, Samsung’s, Tesla’s Secret Supplier…
Because the company that supplies this AI technology, is the secret
behind every single one of these and a lot of other companies.
It’s the same company selling “weapons” to every company
fighting this war.
It’s like the arms dealer. Seriously - it’s fascinating.
It’s the company selling the “guns” to all the companies
fighting this chip war.
_And yet, it is still trading at a discount._
IT IS MIND-BOGGLING TO ME THAT THIS STOCK’S PRICE ISN’T HIGHER.
(GO HERE IF YOU MISSED THIS)
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But anyway, what I really want to talk about here is that we have now
officially entered a new era of “chip wars.”
You saw it starting to happen when the Trump administration bought 10%
of Intel.
You could see it starting to happen with Qualcomm… with Apple and
their customized M1 chip.
We’re seeing it right now, unfolding every day.
I don’t think ever in the history of technology have so many tech
firms moved in one direction, which is to replicate these chips.
These chips, as you may well know, are really like software and
semiconductor in one.
It’s the next evolution in chips, and it’s going to blow apart
Moore’s Law.
It’s already happening.
We’ve moved into a new era and this secret supplier we’ve been
talking about
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- supplier to Apple, Amazon - everybody…
All these chip companies, fighting it out…
This company is just in a great position. Our readers who have bought
shares on our recommendation, are in a great position to be in.
If you haven’t read our report on this secret supplier, it is our #1
AI Stock to Buy ASAP.
GO HERE NOW FOR THE TICKER >>>
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"The Buck Stops Here"
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