TIP838: Google, Reddit, Amazon – Are Our Biggest Winners Still a Buy? w/ Daniel Mahncke & Shawn O’Malley

Episode Summary

Executive Summary: The episode revisits the hosts’ biggest winners and near-misses to extract investing lessons. Google/Alphabet, Amazon, Reddit, Remitly, TSMC, Dell, and Comfort Systems all benefited from AI, but in different ways: some via valuation rerating, others via earnings/margin upside or infrastructure demand. The hosts emphasize letting winners run, but only when business quality and durability justify it.

Main Topics: Alphabet/Google as the flagship winner (Priority: 5/5): The hosts explain why Alphabet became their largest holding and one of their best investments: panic over search disruption and antitrust drove the stock down, while AI integration, cloud growth, and earnings strength drove a major rerating higher. AI capex, free cash flow, and the changing nature of big tech (Priority: 5/5): A major theme is that Alphabet and Amazon are spending around $200B each on capex, creating negative free cash flow in the short term and making them more capital-intensive businesses than in the past. Amazon as a higher-quality current opportunity than Google (Priority: 4/5): Amazon is framed as cheaper than Google on adjusted valuation, with multiple AI upside channels: AWS, chips, logistics automation, and e-commerce efficiency. The hosts think it has more room to rerate. Reddit’s user-monetization tradeoff and Google dependence (Priority: 5/5): Reddit’s stock success is attributed to stronger monetization and margin expansion, but the latest earnings raised concerns about weak logged-in user growth and heavy dependence on Google-driven traffic. Lessons from non-portfolio winners: Remitly, TSMC, Dell, Comfort Systems (Priority: 4/5): These names underscore how market narratives, AI demand, and margin surprises can drive massive returns even when the original thesis was cautious or the position was never added. Portfolio process: winners, trimming, and letting compounding work (Priority: 4/5): The hosts discuss when to hold, add, or trim. They favor holding durable compounders like Google, but are more willing to trim volatile, less durable names like Reddit after extreme moves.

Key Arguments: Valuation models are limited because they mostly extrapolate the status quo; they can badly understate upside when a business surprises to the upside or when market sentiment changes sharply. Alphabet’s stock rerated because the market’s fear of search disruption reversed and AI became a perceived strength rather than a threat. Google’s business quality justifies holding even at a higher valuation, but the hosts would not initiate a new position at current prices given better alternatives. AI has shifted big tech from asset-light software economics toward heavy physical infrastructure spending, changing cash flow profiles and risk. Amazon looks more attractive than Google today because it remains cheaper after adjustments and has multiple AI-enabled growth paths with less narrative risk. Reddit’s strength is deep, real-human content and strong monetization of a large user base, but logged-in user growth is crucial to long-term earnings power. A company can be a great business and still have a volatile stock; quality matters more than short-term price action when deciding whether to hold winners. Remitly and Reddit show that understanding earnings power and margin potential can be more important than focusing on current reported profitability. TSMC’s moat comes from manufacturing leadership, customer indispensability, and process-node dominance, but geopolitical risk remains a meaningful overhang. Some “boring” names like Dell and Comfort Systems can outperform dramatically when they sit in the path of a major spending cycle like AI data centers.

Data Points: Alphabet stock low: about $150/share - Touched during the period when search-disruption and antitrust fears were strongest. Alphabet purchase range: $150-$190/share - The hosts averaged into Alphabet during the selloff. Alphabet gain: almost 100% - Approximate gain on the position discussed. Alphabet revenue: roughly $475 billion - Used in valuation/capex discussion for 2026. Alphabet operating margin: 34%-35% - Referenced for 2026 business profile. Alphabet capex guidance: about $200 billion in 2026; estimates as high as $300 billion next year - Core concern: capex may pressure free cash flow and margins. Alphabet free cash flow multiple: over 70x - Attributed to capex reducing free cash flow. Alphabet operating cash flow growth: from 0% in 2022 to almost 40% today - Shows earnings/cash flow acceleration despite AI spend. Alphabet debt raised: more than $50 billion - Long-term debt issued to help fund capex. Alphabet new shares issued: about $85 billion - Equity issuance tied to funding AI/data-center investment. Google Cloud growth: from low-30s% to more than 80% YoY - Latest-quarter growth acceleration. Google Cloud backlog: half a trillion dollars - Backlog cited as evidence of strong AI demand. Backlog growth: 375% YoY - Magnitude of Google Cloud backlog growth. Backlog recognition window: about 50% within 24 months - Management expectation for backlog conversion. Amazon capex guidance: roughly $200 billion - Comparable AI infrastructure spend to Alphabet. Amazon debt raised: close to $90 billion - Funding spending on AI/infrastructure. Amazon purchase range: around $190/share - Position opened in February. Amazon short-term return: about 35% in five months - Return noted before the latest earnings reaction. Amazon adjusted valuation: closer to 17x-18x operating cash flow - After adjusting for Anthropic stake markup. Amazon revenue: more than $700 billion - Scale matters for incremental margin gains and automation benefits. Reddit initial pitch price: about $85/share - Initial pitch cited in the discussion. Reddit gain after buy: up 140% in about four months - The stock ran up sharply before partial profit-taking. Reddit realized gain: about 140% - From shares sold after the initial surge. Reddit unrealized gain: about 60% - On shares repurchased after trimming. Reddit revenue growth: about 60% - Latest quarter referenced. Reddit logged-in visitors growth: 7% YoY - Disappointing user growth metric in the latest quarter. Reddit users: about 300 million - Large user base with monetization upside. Reddit daily-to-monthly active ratio: about 9% - Structural engagement metric discussed. TikTok daily-to-monthly active ratio: about 35% - Comparison point for engagement. Instagram daily-to-monthly active ratio: about 50% - Comparison point for engagement. Reddit Google traffic share: more than half of daily users - A large portion of Reddit traffic comes via Google search. Reddit data licensing fee from Google: $60 million per year - Current Google deal for training/search data. Reddit raw training data share: 5%-10% - Estimated contribution to LLM training data. Reddit real-time search citations share: as much as 40% - Estimated role in AI-driven answer engines. Remitly stock move: up about 80%-90% - Performance after the pitch and subsequent margin inflection. Remitly EBITDA margin guidance change: from 16% to 12% - Last-year downgrade that helped set up the rerating. Remitly EBITDA margin: 22% - Recent quarters showed a strong margin inflection. Remitly marketing return: about 6x - Marketing spend cited as highly effective customer acquisition. TSMC stock move: about a double - Performance since the pitch. TSMC revenue growth: north of 30% - Referenced as part of the original bullish case. TSMC valuation: around 20x earnings - Original attractive entry multiple. TSMC capex commitment: close to $300 billion - Investments in fabs in the U.S., Japan, and Germany. Dell infrastructure revenue mix: about 60% - Infrastructure business grew to dominate more of revenue. Dell AI infrastructure revenue growth: about 70% YoY - Strong data-center demand fueled growth. Dell AI server margins: mid-single digits - Management commentary on profitability. Dell forward P/E: 22x - Current valuation versus historical average. Dell average historical P/E: 8.5x - Eight-year average referenced. Dell median historical P/E: 10x - Ten-year median referenced. Comfort Systems stock price estimate vs actual: $320-$340 estimated vs $1,700 actual - Illustrates how far the stock ran beyond expectations. Comfort Systems return: about 5x - Performance over roughly 15 months.

Pivotal Quotes: "Great businesses surprise you to the upside, mediocre businesses surprise you to the downside." — Daniel Manka: Central investing lesson used repeatedly to explain winner behavior and valuation risk. "All you need for a life of successful investing is a few big winners." — Peter Lynch (quoted by hosts): Closing takeaway emphasizing that a small number of exceptional holdings can dominate long-term results. "I like both Amazon and Google a lot. And it's mainly because both of them feel like they would benefit massively from AI. But if AI should be a disappointment in whatever way that would be, they still would be fine." — Daniel Manka: Summarizes the thesis for owning durable AI beneficiaries with downside resilience.

Implications: The episode argues that AI winners are being driven as much by sentiment and capital allocation as by fundamentals. Listeners should focus on business durability, cash-flow quality, and whether a name still deserves a long-term hold despite valuation concerns.