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The Google Bubble

Stocks in this article: GOOG AAPL MSFT AMZN FB

A month of rumors and the final product announcements have put Google stock on an Apple-like rise. At $916, it sells for 27 times earnings, even though revenue growth has slowed, operating cash flow cratered in the first quarter, and it holds barely $1 billion more in cash than it did a year ago.

Full disclosure. I like Google. I always have. I have pounded the table for the stock in the past, and still hold a few shares.

But the recent price action strikes me as the product of a true reality-distortion field, with Larry Page's silence (he has a form of vocal cord paralysis, he writes) only adding to the corporate mystery.

What investors believe is that with the costs of the network set as essentially free, any revenue Google gets from these new services goes straight to the bottom line.

That's not true. Content makes Google a reseller; financial services require development of their own specialized infrastructure, and Google is still getting pushed around in national capitals and courts around the world over patents, taxes, and antitrust issues.

At Google I/O, Google wrapped all these business initiatives around free features like voice commands on Google Now, and a "card" system for mobile devices displaying a full screen of data at a time, which will also become a new design metaphor for the Google Plus social service.

What's cool about all of this is that these weren't just product announcements or demonstrations. These are changes in the underlying software of Google that are available now - they're all real. All the links in this story go right to Google. This is the heart of the matter, that networks can change at the center and deliver new features to everyone, all at once, while device owners have to upgrade one-by-one.

But these products are unproven. We don't know how consumers will react to the changes. If they make Android more competitive with Apple's iOS, if they really drive revenue, then the bulls will have been proven right.

But I wouldn't assume that without more evidence.

At the time of publication, the author was long GOOG and AAPL.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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