4 ms·

Question from an outsider: my perception is Google has lost $80b in excessive spending on teacups. I never thought I'd see them attempt to raise money, seems li

Question from an outsider: my perception is Google has lost $80b in excessive spending on teacups. I never thought I'd see them attempt to raise money, seems like they've always had an unlimited pile of it. Why is this necessary for them?

missedthecue 5mo ago
If they can issue shares at ~30x earnings and deploy it in an accretive way, what is the argument against doing this? It's incremental ROIC below your cost of capital. One of the smartest things you can do in business.
- exabrial 5mo ago
  But why finance it at all if you have (I assume) the cash laying around? That seems a tad risky if the bet doesn't work out. Not nitpicking your answer, I just don't understand.
  - greesil 5mo ago
    If you were anticipating the stock to drop sharply in the future, this may be cheaper.
  - missedthecue 5mo ago
    Offering shares doesn't introduce balance sheet risk like debt does. There is no interest expense. You dilute the shareholders by about 1.67% but if this $80b can be deployed in a way that increases the value of the firm by more than that amount over the long term, it creates value and makes everyone better off, including the diluted shareholders. The risk if it doesn't work out is that everyone gets diluted 1.67%
    - exabrial 5mo ago
      Hh I didn't consider that. Produce more shares, have Berkshire buy them up at a lower price than the public, in exchange for capital right now. Berkshire can sell them for a profit later or participate in earnings. And with their shares at a premium right now, great time to do it.
  - bandrami 5mo ago
    You sell equity now if you think equity is going to be worth less in the future
  - tguedes 5mo ago
    They don't have the cash laying around. Their "actual" profit, meaning money added to their bank account after stock buy backs, dividends, employee stock allocations, and capex was $7B. In this statement, their 2025 capex was $91.45B. They expect their 2026 capex to be $180B-190B. And they expect their "2027 capital expenditures to significantly increase compared to 2026." So they simply don't have the money. Up until now, I thought the bubble talks about AI were silly because all these companies were using cash flow to fund their capex. These numbers are so astronomical now that a company that had $132B in net income has to take debt or issue stock to pay for it.
aorloff 5mo ago
It would be prudent, not necessary. Capital raising is best done when markets are favorable, and Alphabet has the ability to choose how and when to raise. Recall the froth of follow-on offerings hot circa 2000
jbs789 5mo ago
I think you’re spot on. If you think they know what they are doing, then why are they selling shares now instead of issuing debt? They must either be maxed out on debt issuance or believe the cost of equity (future equity returns) are low.

missedthecue 5mo ago

If they can issue shares at ~30x earnings and deploy it in an accretive way, what is the argument against doing this? It's incremental ROIC below your cost of capital. One of the smartest things you can do in business.

exabrial 5mo ago
But why finance it at all if you have (I assume) the cash laying around? That seems a tad risky if the bet doesn't work out. Not nitpicking your answer, I just don't understand.
- greesil 5mo ago
  If you were anticipating the stock to drop sharply in the future, this may be cheaper.
- missedthecue 5mo ago
  Offering shares doesn't introduce balance sheet risk like debt does. There is no interest expense. You dilute the shareholders by about 1.67% but if this $80b can be deployed in a way that increases the value of the firm by more than that amount over the long term, it creates value and makes everyone better off, including the diluted shareholders. The risk if it doesn't work out is that everyone gets diluted 1.67%
  - exabrial 5mo ago
    Hh I didn't consider that. Produce more shares, have Berkshire buy them up at a lower price than the public, in exchange for capital right now. Berkshire can sell them for a profit later or participate in earnings. And with their shares at a premium right now, great time to do it.
- bandrami 5mo ago
  You sell equity now if you think equity is going to be worth less in the future
- tguedes 5mo ago
  They don't have the cash laying around. Their "actual" profit, meaning money added to their bank account after stock buy backs, dividends, employee stock allocations, and capex was $7B. In this statement, their 2025 capex was $91.45B. They expect their 2026 capex to be $180B-190B. And they expect their "2027 capital expenditures to significantly increase compared to 2026." So they simply don't have the money. Up until now, I thought the bubble talks about AI were silly because all these companies were using cash flow to fund their capex. These numbers are so astronomical now that a company that had $132B in net income has to take debt or issue stock to pay for it.

aorloff 5mo ago

It would be prudent, not necessary. Capital raising is best done when markets are favorable, and Alphabet has the ability to choose how and when to raise. Recall the froth of follow-on offerings hot circa 2000

jbs789 5mo ago

I think you’re spot on. If you think they know what they are doing, then why are they selling shares now instead of issuing debt? They must either be maxed out on debt issuance or believe the cost of equity (future equity returns) are low.