Why Alphabet Traded CrowdStrike for a $32 Billion Bet on Wiz and Google Cloud's Future

Alphabet Sells Stake in Leading AI Stock, Invests $32 Billion in Rival Startup

Alphabet is making bold moves in the artificial intelligence (AI) sector. Its investment fund, CapitalG, which manages over $7 billion in assets, recently sold off its entire stake in a prominent AI company it first backed in 2015. Instead, Alphabet plans to acquire a major competitor in the cloud security space for $32 billion, aiming to strengthen Google’s fastest-growing business segment.

CapitalG’s Strategic Exit from CrowdStrike

CapitalG divested its remaining shares of CrowdStrike over the past two quarters. By the end of 2023, CrowdStrike represented a significant portion—about 15%—of CapitalG's equity portfolio. Despite CrowdStrike’s strong revenue growth of 42% year over year and increasing customer adoption of multiple security modules, valuation concerns drove the sell-off.

CrowdStrike endured a severe outage in mid-2024, which caused its stock price to drop over 40%. Although shares have since rebounded, the company has faced margin pressure due to increased sales and marketing expenses and discounts offered to customers bundling multiple products. Its non-GAAP operating margin declined from 23% to 18% over the past year.

The company is advancing its AI capabilities through the new Charlotte platform, which uses machine learning to detect and respond quickly to security threats. While CrowdStrike remains a leader in cybersecurity, its shares trade at roughly 27 times sales, making it one of the most expensive stocks in the sector.

Alphabet’s $32 Billion Bet on Wiz to Boost Google Cloud

Google Cloud ranks third globally but trails Microsoft's Azure by a wide margin. With Azure’s fiscal 2025 revenue at $75 billion compared to Google Cloud’s $54.5 billion run rate for Q2, Alphabet needs to accelerate growth to close the gap.

Acquiring Wiz, a cloud security startup, offers Alphabet a chance to enhance Google Cloud’s security offerings and increase customer retention. Wiz’s solutions can be integrated across Google’s cloud platform, potentially attracting sectors with high-security demands like government and banking.

However, maintaining Wiz’s neutrality will be crucial. Over-integration might push some customers toward competitors such as CrowdStrike. With Alphabet’s $95 billion cash and marketable securities reserves, the $32 billion price tag, though high, positions Google Cloud for stronger growth.

What This Means for Investors

• Alphabet is prioritizing growth in cloud security by acquiring Wiz, signaling confidence in this segment’s potential.
• CapitalG’s exit from CrowdStrike reflects valuation discipline and a strategic shift toward direct ownership of competing technology.
• Google Cloud’s expansion through Wiz could help it gain market share in industries where security is critical.
• Alphabet’s shares currently trade at a forward price-to-earnings ratio below 20, offering reasonable value despite regulatory uncertainties.

For professionals interested in AI and cloud security trends, staying informed about these shifts is key. Learning about AI applications in cybersecurity and cloud platforms can offer practical insights for making better investment and business decisions.

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