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You are reading view 1 of Alphabet, published 2026-11-01.This is the latest view

GOOGL · view 1

Own below$167.68

Search pays for everything, and AI is both its biggest threat and its biggest opportunity; the price has to allow for search being worth less than it was.

Bear value
$84.90
Base value
$209.60
Bull value
$346.21
Price then
–
AssumptionBearBaseBull
Revenue growth a year4.0%10.0%14.0%
Free cash flow margin, final year20.0%26.0%30.0%
Share count change a year-1.0%-1.5%-2.0%
Exit multiple of free cash flow15.0x22.0x26.0x
Discount rate10.0%10.0%10.0%
Years555
Value per share today$84.90$209.60$346.21
How these values are computed

Starting from FY2025: revenue $402.8B, 12.23B diluted shares, net cash $78.3B. Final-year free cash flow at the exit multiple, per final share, discounted to today, plus today's net cash per share.

  • Bear: AI answers take a third of search's commercial queries without matching ad economics.
  • Base: Search holds as AI becomes part of it; Cloud compounds; capex normalises.
  • Bull: AI deepens the moat: Gemini and TPUs win on cost, search monetises answers.

Scorecard then

Scorecard: GOOGL510Technology edge9/10Switching costs6/10Growth runway7/10Profitability8/10Capital allocation7/10Valuationneeds a price
GOOGL7.4Pick an axis to read the reasons.

The business

Alphabet earns most of its money from Google Search ads: advertisers bid in auctions to appear next to queries, and Google collects when users click. YouTube adds video ads and subscriptions; the ad network places ads on other sites. Google Cloud sells infrastructure, data tools and AI models to businesses, and is now profitable. Alphabet also designs its own AI chips (TPUs) and models (Gemini, from Google DeepMind).

Revenue in FY2025 was $402.8B, up 15.1%, with operating margin of 32%.

Moat and switching costs

Search's moat is scale on both sides: the most queries produce the best ads auction and the best data to improve results, and default placement (in Chrome, Android and on Apple devices) keeps the queries coming. AI chat assistants attack the first part: a user who gets an answer instead of a list of links may never see an ad.

The less visible moat is cost. Owning the chips, the data centres and the models means Alphabet can serve AI answers more cheaply than most rivals, which matters when AI answers become the product.

How the technology shows up in the numbers

The business converts most revenue into profit, but it is now capital hungry. Free cash flow was $73.3B in FY2025, roughly flat for three years while net income rose from $73.8B to $132.2B: the difference is data-centre and chip spending for AI.

Stock-based compensation is large ($25.0B in FY2025), so owner earnings (free cash flow minus stock pay) were $48.3B. Buybacks more than offset the dilution: diluted shares fell 1.7% in FY2025 and 3.3% in FY2023.

Thesis

Alphabet is priced as if search's best years are behind it. If AI answers are monetised at close to the economics of today's search ads, and Cloud keeps compounding on its own chips, earnings keep growing double digits and the capex cycle pays back.

We would own it below our stated price; the margin of safety is for the scenario where search shrinks.

Risks

  • AI answers cannibalising search ads faster than new ad formats replace them.
  • Antitrust remedies in the US search case and EU rulings that weaken default placement or the ad-tech business.
  • Capex that grows faster than the revenue it supports.
  • Other Bets and moonshots consuming cash without a path to returns.

What would change our mind

  • Paid clicks or search revenue declining for several consecutive quarters.
  • Losing default search placement on a major platform.
  • Cloud operating margin falling back toward zero.