Alphabet has decided to sell its entire AI stock and buy a startup named Wiz for $32 billion. Know the entire strategy and impact behind it.
Google’s parent company Alphabet (NASDAQ: GOOG, GOOGL) is one of the world’s largest AI investor companies. Recently, the company has made a big change in its investment portfolio it has entered into an agreement to buy a new startup for $32 billion, while completely exiting a major AI stock.
Alphabet’s big bet in AI
Alphabet spends heavily on artificial intelligence (AI) every year. In the second quarter 2024 earnings call, the company’s CFO Anat Ashkenazi said that capital expenditure (Capex) will reach $85 billion this year, of which about two-thirds will be spent on server infrastructure and training of large language models (LLM).
Investment in AI is not limited to just Google Cloud or Google AI. Company’s also has an independent net growth fund called CapitalG, which has $7 billion in big assets under management. It has made early investments in many big companies so far, of which 16 companies have done IPO.
Completely out of CrowdStrike
CapitalG invested in CrowdStrike company in a Series C funding round in around 2015. But in 2024, the company gradually started selling its shares and ended its entire stake in it by the end of the second quarter.
CrowdStrike is a strong name in the cybersecurity sector, but in July 2024 it suffered a major outage, causing the share price to fall by 40%. Although the prices recovered later, Alphabet took advantage of this and took an exit.
There were two main reasons behind this move first, the high valuation of the stock and second, Alphabet’s plan to buy Wiz.
New chapter with Wiz
Alphabet is now going to buy a cloud security company named Wiz for $32 billion. By integrating Wiz’s technology into Google Cloud, the company will have a chance to get a stronger hold in the field of cloud security.
Although Google Cloud is growing rapidly, it still lags behind Microsoft Azure and Amazon AWS. Azure has an annual run rate of $75 billion, while Google Cloud is at $54.5 billion. In such a situation, the acquisition of Wiz can prove to be an additional strength for Google Cloud.
CrowdStrike vs Wiz – What will be the impact?
CrowdStrike is still strong in the market and is bringing new technology like the AI-based Charlotte platform, which can instantly identify cyber threats and take action. But its premium valuation and Alphabet’s decision to join with Wiz could challenge its position in the cloud security market.
Google Cloud may get an edge, especially in high-security sectors like government and banking.
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Hint for investors
Alphabet currently has $95 billion in cash and marketable securities, making it easy to fund such a big deal. The $32 billion price tag may be hefty, but if regulatory approval is received, it could give a big advantage for Google Cloud in the long term.
Alphabet’s forward P/E ratio is less than 20, which can be considered attractive according to its growth potential. Although the company may face regulatory pressure, the current valuation is an opportunity for investors.
