Deep Dive: A Primer on Mag7 (Part 3)
What drives the Mag7's revenues and bottom lines? How do they allocate capital, and are they positioned for continued outsized returns? How should we understand them in relation to the market overall?
Two weeks ago, the Besties and I talked about Google’s launch of AI Mode. On that pod, I said that AI Mode will become the default search experience for most users within 12 months, and that Google was likely running A/B tests to evaluate the trade-off between how urgently they are willing to cannibalize their kingpin business (Google Search) in order to reduce the risk that OpenAI becomes the new front door to the internet.
At the same time, my team and I were also working on this Deep Dive on Google. On one end, advanced users are starting to build a new habit of typing in chatgpt.com instead of google.com when they have a query. On the other hand, Search still boasts 14x the usage of ChatGPT overall with over 25x more users.
One of the key questions that will define the AI era (and Google’s future) is – which company will establish the strongest habit with the largest number of people and become the new front door of the internet?
I’ve been observing and studying Google for a long time, so my team has taken my mental framing and back-of-the-napkin breakdown of Google’s businesses and put it on paper, after pressure-testing the underlying claims with data. We also looked at the wide ecosystem of Google products and tried to size those bets accordingly.
In the end, we hope to provide a distilled and organized view of how to understand Alphabet/Google today, as well as the ecosystem and synergy Alphabet is building with their various products, acquisitions, and business segments.
For me, I found that this exercise helped me carve out a more robust version of my own thesis for where Alphabet stands today.
As a continuation of our analysis of Nvidia/Tesla (Part 1), and Meta (Part 2), this week we’re continuing the discussion and focusing on Alphabet. If we’ve done our job right, this work should impart an essential and durable understanding that stands up to the daily noise and chatter surrounding the company.
The rest of the Mag7 chapters will come out later this week.
Hope this helps.
Chamath