Alphabet Secures Adani Funding for AI Data Center, Reinforcing Capex and Valuation Concerns

What happened

Alphabet is attracting up to $5 billion from India's Adani Group to build a large AI data-center campus in Andhra Pradesh, highlighting its aggressive push into AI infrastructure. This aligns with the DeepValue report's emphasis on Alphabet's rising capital expenditures for AI and cloud services, which are already flagged as a key risk due to potential margin pressure. The report notes that Alphabet's stock trades at ~31.5x trailing earnings, more than double a conservative DCF estimate, pricing in significant AI upside while underweighting regulatory and competitive headwinds. While this partnership may bolster Alphabet's presence in India's high-growth cloud market, it does not address core concerns such as the U.S. search monopoly ruling or the challenge of earning attractive returns on AI investments. Overall, this news underscores Alphabet's continued AI capex ramp but does not materially improve the risk/reward profile that supports a 'WAIT' recommendation.

Implication

The Adani funding locks in additional capital expenditure, potentially straining free cash flow if AI monetization lags behind expectations, as warned in the DeepValue report. Given the stock's premium valuation, any incremental capex without immediate revenue acceleration could further widen the gap between price and intrinsic value, maintaining asymmetry. This move may help Alphabet capture growth in India's cloud market, but it faces intense competition from hyperscalers and neocloud providers, along with regulatory uncertainties that could dampen returns. Investors should monitor whether such investments lead to tangible improvements in Google Cloud's profitability and market share, as highlighted in the report's watch items for AI ROI. Ultimately, this news reinforces the need for caution, aligning with the 'WAIT' stance until clearer signs of AI-driven returns emerge or valuation resets to more attractive levels.

Thesis delta

The Adani funding news does not alter the core investment thesis of 'WAIT' as it aligns with existing concerns about rising capital intensity and full valuation. It provides a concrete example of Alphabet's execution in AI infrastructure, which could be positive if efficiently managed, but no material shift in stance is warranted given persistent regulatory overhangs and the high bar for AI returns.