Dimitry Nakhla | Babylon Capital®
In less than 5 months, $GOOG has surged from $181 to $300, a +65% gain📈

Shows how powerful sentiment can be

A business with $GOOG moat, growth profile, & AI potential should not have been priced under 20x

Today, $GOOG appears fairly valued https://t.co/WsFxnGCLgv

A quality valuation analysis on $GOOG 🧘🏽‍♂️

•NTM P/E Ratio: 19.32x
•10-Year Mean: 23.69x

•NTM FCF Yield: 3.79%
•10-Year Mean: 4.18%

As you can see, $GOOG appears to be trading below fair value

Going forward, investors can receive ~18% MORE in earnings per share & ~9% LESS in FCF per share 🧠***

Before we get into valuation, let’s take a look at why $GOOG is a great business

BALANCE SHEET✅
•Cash & Short-Term Inv: $95.33B
•Long-Term Debt: $10.89B

$GOOG has a strong balance sheet, an AA+ S&P Credit Rating & 467x FFO Interest Coverage

RETURN ON CAPITAL✅
•2020: 16.2%
•2021: 27.6%
•2022: 26.1%
•2023: 26.9%
•2024: 32.3%
•LTM: 31.9%

RETURN ON EQUITY✅
•2020: 19.0%
•2021: 32.1%
•2022: 23.6%
•2023: 27.4%
•2024: 32.9%
•LTM: 34.8%

$GOOG has strong return metrics, highlighting the financial efficiency of the business

REVENUES✅
•2014: $66.00B
•2024: $350.02B
•CAGR: 18.16%

FREE CASH FLOW✅
•2014: $12.01B
•2024: $72.76B
•CAGR: 19.73%

NORMALIZED EPS✅
•2014: $1.28
•2024: $8.04
•CAGR: 20.17%

SHARE BUYBACKS✅
•2018 Shares Outstanding: 14.07B
•LTM Shares Outstanding: 12.39B

By reducing its shares outstanding ~12%, $GOOG increased its EPS by ~13.6% (assuming 0 growth)

MARGINS✅
•LTM Gross Margins: 58.2%
•LTM Operating Margins: 33.2%
•LTM Net Income Margins: 30.9%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~18% MORE in EPS & ~9% LESS in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $GOOG has to grow earnings at a 9.66% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2025 - 2028 EPS growth over the next few years to be more than the (9.66%) required growth rate:

2025E: $9.61 (19.5% YoY) *FY Dec
2026E: $10.21 (6.3% YoY)
2027E: $11.55 (13.1% YoY)
2028E: $13.57 (17.4% YoY)

$GOOG has an excellent track record of meeting analyst estimates ~2 years out, but let’s assume $GOOG ends 2028 with $13.57 in EPS & see its CAGR potential assuming different multiples

23x P/E: $312.11💵 … ~17.4% CAGR

22x P/E: $298.54💵 … ~15.9% CAGR

21x P/E: $284.97💵 … ~14.5% CAGR

20x P/E: $271.40💵 … ~12.8% CAGR

19x P/E: $257.83💵 … ~11.2% CAGR

As you can see, $GOOG appears to have attractive return potential IF we assume >20x earnings (a multiple below its 5-year & 10-year mean while assuming a lower 2028E)

At >22x, $GOOG has aggressive CAGR potential & it’s not unreasonable for the business to even trade for ~23x (given its growth rate, moat, balance sheet, & exemplary capital allocation)

Today at $181💵 $GOOG appears to be a strong consideration for investment

Between cloud ☁️ , AI 🤖 , quantum computing ⚛️, $GOOG has a strong growth runway ahead, with the potential for continued margin expansion serving as an additional tailwind

$GOOGL
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𝐃𝐈𝐒𝐂𝐋𝐎𝐒𝐔𝐑𝐄‼️: 𝐓𝐡𝐢𝐬 𝐢𝐬 𝐍𝐎𝐓 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐀𝐝𝐯𝐢𝐜𝐞. 𝐁𝐚𝐛𝐲𝐥𝐨𝐧 𝐂𝐚𝐩𝐢𝐭𝐚𝐥® 𝐚𝐧𝐝 𝐢𝐭𝐬 𝐫𝐞𝐩𝐫𝐞𝐬𝐞𝐧𝐭𝐚𝐭𝐢𝐯𝐞𝐬 𝐦𝐚𝐲 𝐡𝐚𝐯𝐞 𝐩𝐨𝐬𝐢𝐭𝐢𝐨𝐧𝐬 𝐢𝐧 𝐭𝐡𝐞 𝐬𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬 𝐝𝐢𝐬𝐜𝐮𝐬𝐬𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭.

𝐓𝐡𝐞 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐢𝐬 𝐢𝐧𝐭𝐞𝐧𝐝𝐞𝐝 𝐟𝐨𝐫 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧𝐚𝐥 𝐩𝐮𝐫𝐩𝐨𝐬𝐞𝐬 𝐨𝐧𝐥𝐲 𝐚𝐧𝐝 𝐬𝐡𝐨𝐮𝐥𝐝 𝐧𝐨𝐭 𝐛𝐞 𝐜𝐨𝐧𝐬𝐭𝐫𝐮𝐞𝐝 𝐚𝐬 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐚𝐝𝐯𝐢𝐜𝐞 𝐭𝐨 𝐦𝐞𝐞𝐭 𝐭𝐡𝐞 𝐬𝐩𝐞𝐜𝐢𝐟𝐢𝐜 𝐧𝐞𝐞𝐝𝐬 𝐨𝐟 𝐚𝐧𝐲 𝐢𝐧𝐝𝐢𝐯𝐢𝐝𝐮𝐚𝐥 𝐨𝐫 𝐬𝐢𝐭𝐮𝐚𝐭𝐢𝐨𝐧. 𝐏𝐚𝐬𝐭 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐚𝐧𝐜𝐞 𝐢𝐬 𝐧𝐨 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞 𝐨𝐟 𝐟𝐮𝐭𝐮𝐫𝐞 𝐫𝐞𝐬𝐮𝐥𝐭𝐬.

𝐈𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐡𝐚𝐬 𝐛𝐞𝐞𝐧 𝐨𝐛𝐭𝐚𝐢𝐧𝐞𝐝 𝐟𝐫𝐨𝐦 𝐬𝐨𝐮𝐫𝐜𝐞𝐬 𝐛𝐞𝐥𝐢𝐞𝐯𝐞𝐝 𝐭𝐨 𝐛𝐞[...]

𝐫𝐞𝐥𝐢𝐚𝐛𝐥𝐞, 𝐛𝐮𝐭 𝐢𝐬 𝐧𝐨𝐭 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞𝐝 𝐚𝐬 𝐭𝐨 𝐜𝐨𝐦𝐩𝐥𝐞𝐭𝐞𝐧𝐞𝐬𝐬 𝐨𝐫 𝐚𝐜𝐜𝐮𝐫𝐚𝐜𝐲. - Dimitry Nakhla | Babylon Capital® tweet

EndGame Macro
Nvidia’s Blowout Isn’t the Whole Story And Here’s What’s Hiding Underneath.

The quarter is objectively massive. No one sees $57B in revenue and a $200B after hours surge and thinks that’s normal. But once you look past the headline and actually sit with the numbers, the picture gets more complicated, not in a conspiratorial way, just in the way late cycle booms usually get complicated when you read the details closely.

The Print Was Enormous But Uneven Underneath

Nvidia delivered everything the market wasn’t positioned for…Revenue up 62% YoY, margins holding in the mid!70s, data center revenue up 66%, and guidance raised again. All confirmed across pages 1–3 of the earnings report.

That’s why you get a candle straight up. The market went in expecting “great but slowing,” and instead it got “still accelerating.”

But parts of the financials don’t perfectly line up with the clean narrative.

Where the Numbers Don’t Feel As Clean

1. Inventories nearly doubled while management says everything is “sold out.”

Page 6 shows inventories rising from $10.1B in January to $19.8B now. Page 8 shows $4.8B of that increase this quarter.

If every GPU is truly spoken for, tight inventory would make sense, not a warehouse filling up. The helpful explanation is timing: systems built faster than hyperscalers can rack them. That happens in big ramps.

But it also hints at something else: some of this surge is tied to hardware already produced but not yet deployed, not pure real time consumption.

2. Accounts receivable jumped by roughly $10B while the story is “unlimited demand.”

Page 6 shows AR rising from $23.1B to $33.4B year to date.

If Nvidia has all the leverage, you’d expect faster cash conversion, not a larger pile of unpaid invoices. Hyperscalers always pay, that’s not the issue. The point is that this boom is partly running on extended terms and concentrated customer relationships. It’s the kind of detail that doesn’t matter until something in the cycle shifts.

3. Margins that look almost unreal for a hardware heavy business

Gross margin at 73.4% and guided to 74.8% (pages 1–2). Operating margin around 63%.

These margins reflect a temporary monopoly window. Nvidia is capturing value at a level almost no hardware company can sustain over time. Nothing about it is shady, but it’s fragile. When margins sit this high, the distance between perfect and normal becomes a long fall. The risk isn’t today; it’s how the market reacts when margins eventually normalize.

4. The buyback engine is doing real work

Page 8 shows $12.5B in buybacks this quarter, and page 2 shows $37B returned over nine months.

That’s meaningful. Buybacks magnify EPS, reduce float, and amplify upside reactions. Combined with massive passive inflows from Vanguard, BlackRock, State Street, Fidelity, and JPM, it explains why the stock can move like a much smaller company despite its size.

How This Happens Despite a Softening Global Economy

This is the strange part: the world is slowing, yet Nvidia looks untouched by it.

And honestly, it is.
•Hyperscalers are in a capex arms race, not a normal business cycle.
•Governments are pushing money into AI, defense computing, and infrastructure.
•Companies are cutting elsewhere so they can keep spending on compute.

This is capital concentration. Most businesses are tightening. A handful are building the future as fast as possible. Nvidia happens to sit in front of that firehose.

The Real Takeaway

The quarter is extraordinary. Nvidia delivered something few modeled, and the market reacted exactly how it reacts when something rare happens.

But the deeper details like inventories rising, receivables swelling, margins at peak levels, buybacks boosting optics are reminders this boom isn’t spotless.

It doesn’t diminish what they accomplished. It just highlights the gap between Nvidia’s world and the broader economy and historically, that gap is where future volatility tends to form.

BR[...]

EAKING: Nvidia, $NVDA, stock rises +5% after announcing record quarterly revenue of $57 billion.

That's +$205 BILLION of market cap on this move. https://t.co/m0t1J3cKCT - The Kobeissi Letter tweet

App Economy Insights
The top 5 now trade at ~30× forward PE.
All of them.

$NVDA $AAPL $MSFT $GOOG $AMZN https://t.co/jWSJA5bkq9
tweet

EndGame Macro
The Minutes Sound Calm… Until You Actually Read Them

If you read the minutes slowly and not just the headline summary, you start to feel the discomfort between the lines. The Fed is trying to talk like things are stable, but the details make it pretty clear they don’t fully trust the footing of this economy. They’re cutting rates with inflation still above target not because they’re suddenly confident, but because the risks they’re looking at have shifted.

The biggest tell is in the plumbing. Funding markets are showing signs of strain again, repo rates popping above interest on reserves, the fed funds rate drifting higher than they’d like, banks hoarding liquidity late in the day, and the Fed’s own backstop facilities getting more use than anyone wants to admit. Those are the quiet signals that the system is running tighter than the narrative suggests. Ending QT on December 1 makes perfect sense in that context; it’s less about inflation and more about avoiding a repeat of the moments in the past when things suddenly broke.

A Labor Market That’s Losing Momentum

The minutes also sound more uneasy about jobs than the press conference tone let on. They describe a labor market that’s cooling in a way that doesn’t feel orderly…slower hiring, a bit more unemployment, and not a lot of churn. And because the shutdown delayed major data releases, they had to rely more on private indicators and anecdotes. When you cut rates while flying partially blind, it usually means you’re trying to get ahead of a problem that isn’t yet showing up cleanly in the headline numbers. They’re very aware that if the job market turns sharply, it will be hard to reverse the damage.

Growth Looks Fine on Paper, Fragile in Reality

On the surface, growth is still labeled moderate, but the details don’t paint a broad, healthy economy. More spending is coming from high income households riding strong equity markets, while lower income consumers are scaling back and becoming more price sensitive. Business investment is strong in AI and data center infrastructure but soft elsewhere. Housing is still constrained by affordability. And growth abroad especially in China and Europe is weak, which is a problem given how trade exposed the U.S. economy remains. All of that adds up to an economy that’s being held up by a narrow set of forces rather than a wide base of strength.

Uneasy About Markets, Even as They Rally

Another subtle theme is their discomfort with the way financial markets are behaving. Equity valuations are elevated, big tech is carrying the indices, hedge fund leverage in Treasuries is high, and parts of private credit are showing cracks. They don’t say it dramatically, but you can tell they’re worried about a market that seems too calm in some places and too enthusiastic in others. When a central bank mentions the risk of a “disorderly fall in equity prices,” you know they see the potential for things to turn quickly.

The Real Message Beneath the Polite Language

Put it all together and the tone becomes clearer. The Fed isn’t easing because the economy is on solid ground; they’re easing because too many small stress points are accumulating at once…softer jobs, a narrower growth base, fragile funding markets, and pockets of leverage that could become problems if conditions tighten further.

They’re not admitting fear, but they’re acting like a group that wants to buy insurance before anything breaks. And in its own way, that tells you more about the real state of the economy than the official forecast ever will.

We have posted the minutes from the #FOMC meeting held October 28-29, 2025: https://t.co/0loYq48ZXZ - Federal Reserve
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Quiver Quantitative
BREAKING: The DOJ has charged Representative Sheila Cherfilus-McCormick with stealing $5 million in FEMA funds.

She allegedly used the money to support her campaign. https://t.co/o3v8pVOUNx
tweet

EndGame Macro
Why the Yen Is Sliding And Why It Might Not Stay That Way

The yen’s drop is the kind of move you get when Japan’s policy choices and the global backdrop push in opposite directions. When that happens, a currency doesn’t ease lower, it gives way.

Japan just reported a negative GDP quarter and immediately followed it with a huge fiscal package. That tells investors the government is leaning harder on spending and issuing more debt. At the same time, the Bank of Japan is trying to exit decades of ultra easy money, but it’s doing it so slowly that it still feels more symbolic than real. Yields are rising, but gently. The market wasn’t looking for gentle, it was looking for conviction.

Put those two things together and you don’t get a picture of a country moving confidently into a new regime. You get a picture of a country trying to stimulate and normalize at the same time, which markets usually interpret as hesitation. And when a central bank looks hesitant in a heavily indebted economy with a history of deflation, investors don’t wait to find out how the story ends. They leave first.

Why Higher Yields Aren’t Helping

It’s true that JGB yields have climbed. But the reason they’re climbing is what matters.

Japan went from paying basically nothing to paying 1.8% on the 10 year and a bit above 3% on the long end. That’s a big shift for Japan, but not nearly enough to compete with U.S. Treasuries at 4%. Global capital doesn’t move just because yields improved; it moves when yields become competitive.

And right now Japan’s yields aren’t rising because growth is strong or because the BOJ has reestablished credibility. They’re rising because inflation lingered, the yen weakened, and Japan’s fiscal footprint is getting bigger. When yields rise for those reasons, the currency usually weakens rather than strengthens.

Where the Yen Carry Trade Comes In

This is the part that ties everything together. For decades, the yen was the cheapest funding currency in the world. Traders borrowed yen at almost no cost and used it to buy higher yielding assets everywhere else. As long as Japan kept rates near zero and the rest of the world offered better returns, it was the easiest trade in global macro.

That dynamic hasn’t disappeared. U.S. yields remain much higher than Japanese yields across the curve. Even with JGBs drifting up, the gap is wide enough that borrowing yen and buying dollar assets is still attractive. When that machine keeps running, the yen stays weak.

Right now, Japan is in that awkward first stage where yields have risen enough to make people nervous, but not enough to shut down the carry trade. So money keeps flowing out, USD/JPY keeps climbing, and speculators keep leaning because they don’t think the BOJ is ready or able to truly defend the currency.

What Happens If the World Slips Into Recession

If the global economy actually rolls over, everything you’re seeing now flips. The same carry trade that pushes the yen weaker in good times becomes the reason it snaps stronger in bad times.

In a real downturn, U.S. yields collapse, risk appetite fades, and anyone who borrowed yen to buy higher yielding assets has to unwind those positions. Unwinding means buying yen back, fast. That’s when USD/JPY doesn’t drift, it snaps lower. Not because Japan is booming, but because deleveraging forces the yen higher.

It happens every cycle.
Weak yen is late cycle.
Strong yen is crisis.

The Bigger Picture

Japan is in the middle of trying to leave the old deflation world, but it hasn’t fully convinced markets it can live comfortably in the new one. Early transitions are messy: yields up for the wrong reasons, a central bank that’s still too cautious, and a currency that keeps sliding.

But none of this is permanent. When the BOJ finally moves decisively, or when global conditions break the carry trade, the yen won’t drift back, it will snap back.

For now, Japan hasn’t closed the policy gap. So the yen is doing the adjustin[...]

g.

The Japanese Yen is collapsing:

It’s now down to its weakest level against the US Dollar since January 15th.

All as Japanese government bond yields surge to record highs.

Stimulus will NOT fix your economic problems. https://t.co/3zoCqW3b39 - The Kobeissi Letter
tweet

Clark Square Capital
I am ready to get hurt again https://t.co/VH8CONOgix
tweet

EndGame Macro
RT @onechancefreedm: The Fed’s 2026 Stress Test: A Hypothetical Or A Warning About What Comes Next

A What If That Feels Too Real

The Federal Reserve calls its 2026 severely adverse stress test a hypothetical exercise, but the details sound more like a preview of the world we’re drifting toward. It’s officially designed to test bank resilience under extreme shocks, yet the assumptions inside reveal a deeper fear: that the era of disinflation is ending, and the next disruption won’t come from overheating demand but from a short lived inflation scare followed by a sharp deflationary bust.

The Fed’s model is built around a two stage breakdown with stagflation first, deep recession second, mirroring the institution’s anxiety about its own limits. After years of tightening, the world has grown used to high yields and strong dollars, but the financial system itself may not be able to survive them.

Inside the Hypothetical: When Inflation Fears Return

The scenario begins with what looks like a global inflation relapse. In the first quarter, the “Global Market Shock” assumes investors suddenly price in persistent inflation pressures: yields spike across the curve, commodities surge, and the dollar strengthens. Equities crash 54%, BBB spreads blow out to 5.7 percentage points, and the VIX shoots to 72, the kind of volatility only seen in systemic crises.

But this isn’t a random inflation event, it’s driven by non monetary shocks, much like what we see brewing now. Supply chains haven’t fully normalized since 2022, and new tariffs, logistics disruptions, and geopolitical tensions have created a world where inflation can flare without growth improving.

The Real World Setup That Mirrors the Scenario

Recent data confirms this underlying fragility. While inflation has cooled sharply from the 9.1% peak in 2022, disinflation’s progress has stalled. Supply chains are functioning better but not smoothly. As of late 2025:
•Tariffs have surged, with the U.S. imposing tariffs on Chinese imports, pushing up input costs and squeezing corporate margins.
•Global logistics remain fragile, with Red Sea attacks, Panama Canal droughts, and slower customs processing disrupting trade routes.
•Energy remains volatile, as geopolitical shocks from Eastern Europe to the Middle East keep oil prices jumpy.
•Wages and service inflation stay sticky, particularly in housing and healthcare, preventing inflation from returning fully to target.

This environment is exactly what the Fed’s stress test anticipates: a false inflation dawn, where prices rise for structural reasons like trade fragmentation, energy, and tariffs triggering tighter financial conditions even as underlying demand weakens.

The Second Act: Deflation After the Panic

Once that inflation scare breaks market confidence, the Fed’s scenario flips violently. Credit seizes up, asset prices collapse, and unemployment soars to 10%. Residential real estate falls 29%, commercial properties 40%, and risk assets never fully recover. Inflation plunges to 1%, policy rates return to 0.1%, and Treasury yields tumble to 2.3% on the 10 year. It’s a self inflicted liquidity trap, a world where fear of inflation births the very deflation it was meant to prevent.

This hypothetical tests whether the financial system can withstand a rapid regime shift from inflation anxiety to funding panic without breaking.

The Broader Message

The Fed’s 2026 scenario may be framed as a stress test, but it doubles as what could be a quiet admission of what’s coming. The Fed is effectively rehearsing how to manage a world defined by permanent instability and where tariffs, energy shocks, and geopolitics keep inflation volatile, and every attempt to control it risks triggering deflation.

The stress test is a hypothetical but not a fantasy. It’s a warning that the new normal is already here, one where inflation fears and liquidity squeezes coexist, and policy itself may become the next systemic risk.

LIVE NOW: Open [...]

Board meeting on stress tests transparency: https://t.co/TH8ICb3DuE - Federal Reserve tweet