If you've ever watched The Matrix, you'll recall the boy who tells Neo that the secret to bending a spoon with his mind is to realize that "There is no spoon." He encourages Neo to see it for what it is instead of what it looks like.
I experienced my own 'spoon-bending' exercise this week when reviewing my portfolio. Alphabet (more commonly known as Google) showed up with a ~17 times earnings multiple.
As a shareholder, I'd happily buy more at that price, but that number doesn't tell the full story.
A large part of this quarter's earnings didn't come from Search, Ads, or Cloud. It was generated by one-off gains on investments (such as stakes in SpaceX and Anthropic). While the gains are great and all, they're not as repeatable as real underlying business growth.
That's why considering the quality of earnings is just as important as the overall amount. Like anything you buy with your own money, the number on the sticker can read as excessive or reasonable depending on what you actually get for it.
Google's multiple still reads 17x, but what bent was the way I looked at it.
This week's Market Insights applies this thinking to the latest earnings season to determine how much of its growth is real versus perception.
Sincerely,
Mitchell Lawler, Senior Investment Editor
