Middle Coast Investing: Alphabet (GOOG) Investment Case
Introduction
In their Q1 2025 investor letter, Middle Coast Investing introduces a new position in Alphabet Inc. (GOOG), highlighting it as one of their key investment decisions during a challenging market environment. The investment comes amid market volatility following what they term the “Liberation Day crash” and subsequent policy uncertainties under the Trump administration. Middle Coast presents Alphabet as an attractive opportunity within the large-cap technology space, particularly valued for its relative stability and attractive valuation metrics compared to peers. The letter emphasizes Middle Coast’s strategy of focusing on quality companies with solid balance sheets and essential customer-serving businesses during turbulent times.
Investment Highlight: Alphabet Inc. (GOOG)
Business Overview
- Parent company of Google, YouTube, and other technology businesses
- Part of the “Magnificent Seven” large-cap technology companies
- Notable subsidiaries include Google Search, YouTube, and Waymo (self-driving technology)
Market Position
- Dominant player in online search and digital advertising
- Strong competitor in the emerging AI landscape
- Strategically positioned across multiple technology verticals
Performance Analysis
- Valuation Metrics:
- Purchased at $170/share
- Trading at 19x 2025 earnings estimates
- Trading at 21x 2024 earnings results (before accounting for cash position)
- Valuation below the S&P 500 average
- Competitive Advantages:
- Strong incumbent position in search
- Significant cash reserves on balance sheet
- Diversified business model across multiple technology segments
Growth Runway
- Potential to remain competitive or lead in generative AI developments
- Waymo unit positioned as potential leader in self-driving technology
- Core advertising business remains robust despite emerging challenges
Market Dynamics and Opportunities
- Less directly exposed to tariff issues than other “Magnificent Seven” peers
- Potential for increased shareholder value in case of regulatory-driven breakup
- YouTube as a particularly valuable asset that could benefit from independent valuation
Risk Factors
- Regulatory and governmental pressure in multiple jurisdictions
- Competition from Microsoft and OpenAI in generative AI
- Potential sensitivity to reduced advertising demand in economic slowdown
Other Key Points
- Added to “give portfolios exposure to large cap technology”
- Identified as the most attractive of the “Magnificent Seven” tech stocks
- Position opened amid broader portfolio adjustments (16.6% cash position)
- Part of Middle Coast’s strategy to focus on quality businesses during market volatility
Middle Coast views Alphabet as a compelling investment opportunity despite market uncertainties, citing its attractive valuation relative to both its tech peers and the broader market. They believe the company is well-positioned to weather economic challenges while maintaining strong competitive advantages in its core businesses.
