Alphabet (GOOGL, Financial) maintained flat revenues (foreign exchange adjusted) at its core search advertising segment on a difficult year ago comparison. We added to our weighting in the quarter as investors became overly concerned about headlines related to the potential for competition from Microsoft's AI investments. Although consumer-facing AI tools are novel and no doubt interesting, we do not think they represent an existential crisis. Alphabet has been investing in, developing and commercializing AI hardware and software tools, as well as the precursors for those hardware and tools, for over a decade. The Company built these investments into its expense base long ago. Further, we think the rest of Alphabet's businesses, particularly its Cloud segment, are capable of generating much better margins at some point. In the meantime, the Company has a fortress balance sheet and has been repurchasing shares at attractive historical multiples.
From David Rolfe (Trades, Portfolio)'s Wedgewood Partners 1st-Quarter 2023 letter.
