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TIP636: Billionaire Investing Legend Li Lu w/ Clay Finck
We Study Billionaires - The Investor’s Podcast Network
Analyzing Li Lu's Investment Moves and Alphabet's Business Strategy
Li Lu increased his stake in Alphabet during Q2 2022 and Q4 2022 when the shares were trading between $90 to $120 per share, and they are now trading at $173 per share in May 2024. Alphabet's revenue primarily comes from the search business, which continues to grow due to an increasing number of search results and ads delivered. The company's return on invested capital has been consistently good, reaching 27% in 2023. Alphabet announced a dividend, bought back almost 3% shares per year for the last three years, and authorized a new share repurchase program of $70 billion. The main concern for Alphabet is the risk of disruption in the search business, but it's challenging to change consumer behavior, considering Google's default option on many platforms like the iPhone's Safari. Alphabet's AI segment, Gemini, focuses on countering developments in the AI space. The company's increasing capital expenditures, particularly in AI investments and data centers, raise uncertainty about future returns. Despite the reinvestment for growth, a significant portion of CapEx is likely aimed at maintaining the current competitive position, which is becoming more expensive over time. In terms of valuation, Alphabet's search business generates $60 to $70 billion in profits, while YouTube and the cloud business each produce around $10 to $12 billion in profits.
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