Dear Reader,
Happy Monday.
Today I want to talk about Alphabet (Google), and the coming chip wars.
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).
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 - 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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