Alphabet (Google): A Digital Empire Built to Last

Alphabet is one of the most influential technology companies in the world, shaping how billions of people search for information, watch video, communicate, and run their businesses. Through its dominance in Search, the global reach of YouTube, the scale of Android and Chrome, and the rapid expansion of Google Cloud, Alphabet combines powerful network effects with deep technological expertise. With AI now embedded across its products and infrastructure, the company is strengthening its competitive position and expanding its long-term opportunities. The question remains: Does this digital powerhouse deserve a place in your portfolio?

This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me. 

For full disclosure, I should mention that I do not own any shares in Alphabet at the time of writing this analysis. If you would like to copy or view my portfolio, you can find instructions on how to do so here. If you want to purchase shares or fractional shares of Alphabet, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.

The Business

Alphabet Inc. is a global technology conglomerate and the parent company of Google. The company was reorganized in 2015 to create a structure that allows its highly profitable core operations to operate alongside a portfolio of longer-term innovation initiatives. Today, Alphabet reports three segments: Google Services, Google Cloud, and Other Bets. Google Services is the economic foundation of the business and generates the majority of total revenue. It includes Search, YouTube, Android, Chrome, Google Play, Gmail, Maps, devices, and subscription offerings. The model is primarily advertising-driven, built around performance and brand advertising shown across Search, YouTube, and partner properties. Search captures user intent at the moment people actively seek information, products, or services, making it one of the most valuable forms of digital real estate. YouTube has developed into a global video platform combining advertising with subscription revenue streams. In addition, Google Services benefits from app store commissions, hardware sales, and recurring subscription income. Google Cloud is Alphabet’s enterprise platform, providing infrastructure, data analytics, cybersecurity, AI tools, and productivity software. It serves businesses that are migrating workloads to the cloud and increasingly adopting AI-driven applications. Alphabet integrates its proprietary AI models into Cloud services, positioning the segment not only as a provider of computing power but as a strategic partner in digital transformation. Other Bets contains earlier-stage ventures pursuing large technological opportunities. The most advanced is Waymo, which operates autonomous ride-hailing services in selected markets. Additional initiatives focus on life sciences, frontier AI applications, and breakthrough research. While these businesses are small relative to the core operations, they provide long-term optionality and reflect Alphabet’s willingness to invest in transformative technologies. Alphabet’s competitive moat rests on reinforcing advantages that include its dominance in Search, powerful network effects in YouTube, structural distribution through Android and Chrome, vast infrastructure scale, and deeply integrated artificial intelligence capabilities. First is the dominance of Search in global information discovery. Its scale produces enormous data advantages, improving relevance, ad targeting, and user experience. This creates a powerful feedback loop where more users attract more advertisers, which funds further product enhancement. The result is a marketplace that is extremely difficult to replicate at global scale. Second is the network effect embedded in YouTube. The platform connects billions of viewers with millions of creators and advertisers. Audience scale attracts content, content attracts engagement, and engagement attracts advertising budgets. Over time, this ecosystem becomes increasingly self-reinforcing and entrenched. Third is structural distribution power through Android and Chrome. As the leading mobile operating system and browser globally, they provide default access points to the internet for billions of users. This lowers customer acquisition costs, strengthens integration across Gmail, Maps, Drive, Search, and YouTube, and increases switching friction. Infrastructure scale forms another major barrier. Alphabet operates some of the most advanced data centers in the world and has invested heavily in custom silicon and AI-optimized computing. This enables cost efficiency, reliability, and the ability to deploy large-scale AI models across consumer and enterprise products. Finally, artificial intelligence is embedded across the entire ecosystem. Alphabet integrates AI into Search results, advertising systems, recommendation engines, productivity tools, and cloud services. Its vertically integrated approach, spanning infrastructure, proprietary models, developer platforms, and end-user applications, allows improvements in one layer to strengthen the entire system, reinforcing the durability of its competitive position.

Management

Sundar Pichai serves as the CEO of Alphabet. He became CEO of Google in 2015 and was appointed CEO of Alphabet in 2019, assuming responsibility for the company’s full portfolio of businesses, including its core internet platforms and long-term innovation initiatives. Since taking the helm, Sundar Pichai has overseen a period of significant revenue expansion, margin discipline, and a strategic shift toward positioning Alphabet as an AI-first organization. Sundar Pichai joined Google in 2004 and quickly established himself as one of the company’s most effective product leaders. He played a central role in the development and launch of Google Chrome, which went on to become the world’s most widely used web browser, as well as Google Drive and the expansion of key consumer products such as Gmail and Google Maps. His leadership of Chrome and Chrome OS strengthened Google’s ecosystem and reinforced its control over critical internet distribution channels. His ability to align engineering excellence with user-centric design contributed meaningfully to Google’s dominance across web and mobile platforms. Born and raised in India, Sundar Pichai earned a degree in metallurgical engineering from the Indian Institute of Technology Kharagpur. He later completed a Master of Science in materials science and engineering at Stanford University and earned an MBA from the Wharton School of the University of Pennsylvania, where he was recognized as a Siebel Scholar and Palmer Scholar. His academic background combines deep technical understanding with strong business training, which has shaped his balanced and methodical leadership style. Colleagues have consistently described Sundar Pichai as calm, analytical, and consensus-oriented, with a strong ability to listen before making decisions. Throughout his career at Google, he has been known for recruiting and retaining top engineering talent while navigating complex internal dynamics within one of the world’s most influential technology companies. His leadership has been externally recognized as well, including high employee approval ratings and reports that he was considered for other prominent CEO roles prior to leading Alphabet. As CEO, Sundar Pichai has faced meaningful challenges, including regulatory scrutiny, intensifying competition in cloud computing, and the rapid emergence of generative AI platforms. Google initially faced criticism for appearing slow in responding to the public launch of ChatGPT, but under Sundar Pichai’s direction the company accelerated its AI roadmap, launching the Gemini family of models and embedding generative AI across Search, YouTube, Workspace, and Google Cloud. He has also overseen significant cost discipline initiatives, including workforce reductions and a renewed focus on operational efficiency, while maintaining substantial investment in AI infrastructure and research. Given his deep product roots, operational discipline, global perspective, and ability to steer Alphabet through major technological transitions, I believe Sundar Pichai remains well positioned to guide the company through the next phase of competition in artificial intelligence, cloud computing, and digital ecosystems.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We require a 10-year history where all figures exceed 10% each year. Alphabet’s ROIC has been very strong for a long time, and especially impressive over the past five years where it has consistently stayed above 20%. For a company of this size, that is exceptional. It tells us that Alphabet has been very good at turning the money it invests into profits. The main reason is the strength of its core advertising business. Google Search captures people at the exact moment they are looking for something. That makes advertising extremely valuable, because businesses can target users with high purchase intent. Once the system is built, each additional search costs relatively little compared to the revenue it generates. That creates a powerful profit engine. YouTube adds another layer. It connects billions of viewers with creators and advertisers. As the platform grows, more content attracts more users, and more users attract more advertising spending. This scale makes the business very efficient. Another reason returns have been high is that much of Alphabet’s advantage comes from software, data, algorithms, and brand rather than physical factories. While the company invests heavily in data centers, much of what makes Google valuable does not require massive physical expansion. That helps keep returns high. Google Cloud has also improved the overall picture. In earlier years it was a drag on profits, but as it has grown and become profitable, it has added to earnings without weakening the overall quality of the business. There are good reasons to believe ROIC can remain strong. Alphabet still dominates Search and YouTube, controls important distribution through Android and Chrome, and is deeply integrating artificial intelligence across its products. In an earnings call, management emphasized that they use a very disciplined framework when deciding how much to invest and where to allocate capital. In 2025 alone, they invested $91 billion in capital expenditures, largely to support AI and infrastructure. They also highlighted that they are already monetizing these AI investments. If AI improves search results, ad performance, cloud services, and user engagement, then these large investments can continue to produce attractive returns. However, there are risks. AI requires far more computing power than traditional search. If the cost of running AI services rises faster than the revenue they generate, returns could come under pressure. Alphabet is spending more than ever on infrastructure, and if those investments do not produce proportional profit growth, returns may gradually decline. Overall, Alphabet’s high returns over the past five years reflect the strength of its advertising engine, its scale, and its ecosystem advantages. While returns may fluctuate and could come down slightly if AI becomes much more capital intensive, the core business remains extremely strong. As long as Alphabet can continue turning its AI investments into higher revenue and stronger products, it is reasonable to expect returns to remain at attractive levels.

The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. Alphabet’s equity has grown every single year over the past decade, and the acceleration in recent years is particularly notable. From 2016 to 2020, equity grew steadily at mostly double digit rates. Growth slowed in 2022, but then reaccelerated meaningfully in 2023, 2024, and especially 2025, where the increase was very strong. The core reason equity has expanded so consistently is simple: Alphabet generates far more profit than it needs to run the business. A large portion of those earnings is retained rather than distributed, and retained earnings directly increase equity. Because the underlying business is highly profitable and scalable, profits have compounded over time, and so has equity. Another important factor is the capital-light nature of much of Alphabet’s business. Search and YouTube generate very high cash flow relative to the physical assets required to operate them. Even though the company invests heavily in data centers and AI infrastructure, cash generation has historically exceeded reinvestment needs. That surplus strengthens the balance sheet year after year. Share repurchases have also played a role in supporting equity per share growth. When Alphabet buys back shares below intrinsic value, remaining shareholders own a larger portion of the company’s earnings and assets. Combined with strong retained profits, this supports long term per share equity expansion. The brief slowdown in 2022 likely reflects a combination of lower profit growth and heavier investment during a more challenging macro environment. The sharp acceleration in 2025 suggests that earnings growth rebounded strongly while the company maintained financial discipline.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. Levered free cash flow margin is used because I believe that margins provide a better understanding. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. Alphabet’s free cash flow has historically been very strong because the core business converts revenue into cash extremely efficiently. Search and YouTube require large upfront investments in infrastructure and engineering, but once those systems are built, each additional user interaction generates revenue at relatively low incremental cost. That operating leverage has allowed cash flow to scale rapidly as revenue has grown. Over the past five years in particular, free cash flow has reached very high levels. This reflects three main drivers. First, the advertising engine has remained highly profitable despite economic fluctuations. Second, Google Cloud has matured and begun contributing meaningfully to overall profitability rather than weighing on it. Third, Alphabet has exercised cost discipline in recent years, including workforce adjustments and tighter expense management, which has supported operating cash flow. The record free cash flow in 2025 is a sign that earnings growth and operating cash flow were strong enough to more than offset rising investments. Management highlighted that operating cash flow reached a record level for the full year, which translated into record free cash flow even after substantial capital expenditures. However, the slight decline in free cash flow margin in 2025 is important. The main reason is the sharp increase in capital spending. Alphabet is investing heavily in AI infrastructure, including data centers and computing capacity to support Google DeepMind, Search improvements, YouTube, and Cloud demand. When capital expenditures rise faster than operating cash flow, free cash flow margins temporarily compress. That does not necessarily signal weakness in the core business. It reflects an intentional decision to invest aggressively for future growth. Management also noted that they are currently supply constrained, meaning demand for AI and cloud capacity is exceeding available infrastructure. This suggests that current investments are aimed at closing that gap. Large infrastructure projects have long lead times, so today’s spending is designed to support revenue growth in future years. Whether free cash flow will continue to grow depends largely on two factors. The first is whether Alphabet can continue expanding operating cash flow through growth in advertising, AI-enhanced search, YouTube monetization, and cloud services. The second is how capital intensity evolves. If AI requires permanently higher ongoing investment just to maintain competitiveness, free cash flow growth could be more moderate. If, however, these AI investments improve monetization and efficiency across products, operating cash flow may continue to outpace capital spending over time. Historically, Alphabet has used its free cash flow in several ways. A significant portion has gone toward share repurchases, which reduce the share count and increase ownership for remaining shareholders. The company also reinvests heavily into infrastructure, AI research, product development, and selective acquisitions. The free cash flow yield is at its lowest level in the past decade, which suggests that the shares are currently trading at a premium valuation. However, we will revisit the valuation later in the analysis.

Debt

Another important aspect to consider is the level of debt. It is crucial to determine whether a business has manageable debt that can be repaid within a period of three years. This is assessed by dividing total long-term debt by earnings. For Alphabet, this calculation shows a debt level of just 0,36 times its annual earnings, which is excellent. In fact, Alphabet has not had a debt-to-earnings ratio above one year at any point in the past 20 years, suggesting that debt is unlikely to become an issue for the company. In addition, Alphabet holds a very large cash balance, which further strengthens its financial position. In reality, the company could repay all of its debt relatively quickly if it chose to do so. This provides a strong buffer during economic downturns and gives Alphabet the flexibility to continue investing heavily in areas such as artificial intelligence and cloud infrastructure without putting pressure on its stability.

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Risks

Antitrust and regulatory risks is a risk for Alphabet because the company operates at a scale and level of influence that few businesses in history have reached. Its dominant positions in Search, digital advertising, mobile operating systems, and web browsing make it a constant target for regulators who argue that its ecosystem limits competition and reinforces monopoly power. In the United States, Alphabet is facing multiple high profile antitrust cases. One of the most important relates to its Search business. In 2024, a federal court ruled against Google in a case concerning its search distribution practices, and in 2025 a final judgment imposed remedies that include restrictions on how Google distributes its services and requirements to share certain search data with competitors. Alphabet has appealed the ruling, and the Department of Justice has also appealed aspects of the decision. Depending on the final outcome, remedies could alter how Search is distributed on browsers, devices, and mobile operating systems, which could weaken one of Alphabet’s most important competitive advantages. A separate antitrust case focuses on Alphabet’s advertising technology business. In 2025, a federal judge ruled that parts of Google’s publisher ad tools unfairly excluded competitors. The Department of Justice is seeking remedies that could include structural changes, potentially even forcing the sale of certain advertising assets such as AdX, its central ad exchange. If such divestitures were required, Alphabet could lose not only direct revenue but also the data synergies that have historically strengthened its advertising ecosystem. The integration between advertiser tools, publisher tools, and exchanges has been a major source of efficiency and competitive strength, so breaking that structure apart could have long term implications. In addition to these US cases, Alphabet faces ongoing scrutiny in Europe and other jurisdictions. The European Union’s Digital Markets Act imposes special obligations on so called gatekeeper platforms, which directly applies to Alphabet. These rules can limit how the company bundles services, prioritizes its own products in search results, or structures app store billing policies. Similar regulatory initiatives are emerging in other countries, particularly around competition, mobile platforms, artificial intelligence, data privacy, and online content moderation. The financial impact of these risks can be significant. Regulatory proceedings can lead to large fines, mandatory changes to business practices, ongoing compliance obligations, or even forced divestitures. Beyond direct penalties, regulatory constraints may reduce Alphabet’s ability to integrate products, leverage data across services, or negotiate default placements. That could weaken some of the reinforcing advantages that have supported its high returns and strong growth.

Competition is a significant risk for Alphabet because it operates in some of the fastest changing areas of technology, where user behavior can shift quickly and new platforms can gain traction in a short period of time. Even companies with strong market positions must constantly adapt to new technologies, new business models, and changing consumer preferences. The most important competitive threat today comes from generative artificial intelligence. For more than two decades, Google Search has been the primary way people find information online. That model is built around users typing queries, reviewing links, and clicking through to websites where advertising is displayed. Generative AI tools such as ChatGPT introduce a different experience. Instead of showing links, they provide direct, conversational answers. If users increasingly rely on AI assistants for research, planning, coding, or shopping decisions, traditional search behavior could gradually decline. Even if total usage remains high, the way users interact with information may change in ways that reduce ad visibility and click activity. There is also the rise of zero click behavior, where users receive complete answers without visiting external websites. Since Alphabet’s advertising model depends on engagement and traffic, any structural reduction in clicks could affect revenue over time. At the same time, AI powered responses require significantly more computing power than traditional search results. If costs rise faster than revenue from AI enhanced search, profitability could be pressured. Competition in digital advertising is another key factor. Alphabet competes with platforms such as Meta, TikTok, and Snap for brand advertising budgets, and with Amazon for product focused advertising. Increasingly, advertisers are spending more within ecosystems where purchases happen directly. If more commercial searches begin and end within e commerce platforms or social media environments, Alphabet must continue improving its ad tools and performance measurement to remain attractive to advertisers. In mobile and distribution, Alphabet faces strong competition from companies with tightly integrated ecosystems. Apple controls both hardware and software within its platform, Microsoft integrates search and AI into Windows and enterprise tools, and Amazon directs product searches within its own marketplace. These companies can influence user behavior through default settings, device integration, and platform design. If users spend more time inside competing ecosystems, Alphabet’s services may capture a smaller share of attention. Cloud computing is also highly competitive. Google Cloud competes with Amazon Web Services and Microsoft Azure, both of which have larger market shares and deep enterprise relationships. Winning in cloud requires continuous investment in infrastructure, artificial intelligence capabilities, and customer relationships. If competitors innovate faster, bundle services more effectively, or compete aggressively on price, Alphabet’s growth in this area could slow.

Macroeconomic factors is a risk for Alphabet because a large majority of its revenue comes from advertising, and advertising spending tends to move in line with overall economic activity. When the economy slows, companies typically reduce discretionary expenses, and marketing budgets are often among the first to be cut. Since more than 70% of Alphabet’s revenue is tied to advertising, any broad decline in ad spending can directly impact revenue growth and profitability. During periods of weaker economic growth or recession, businesses in sectors such as retail, travel, real estate, and finance often reduce advertising budgets significantly. These industries represent a meaningful share of Alphabet’s advertiser base. If consumer spending slows, companies generate less revenue and become more cautious with marketing expenses. Even if Alphabet maintains its market share in digital advertising, the overall size of the advertising market may shrink temporarily. Macroeconomic pressure can also affect pricing. In a softer environment, advertisers may shift toward performance based ads with strict return requirements and pull back from brand advertising. This can affect the mix and pricing dynamics across Search and YouTube. While performance advertising is generally resilient, it is still influenced by business confidence and consumer demand. Another dimension of macro risk relates to interest rates and capital intensity. Alphabet is currently investing heavily in AI infrastructure and data centers, with capital expenditures expected to remain very high. When interest rates are elevated, the broader market places lower valuations on future earnings. At the same time, higher inflation in areas such as semiconductors, energy, and construction can increase the cost of building and operating data centers. If infrastructure costs rise faster than revenue from AI and Cloud services, profitability could come under pressure. Supply chain disruptions and trade policies can add to this risk. Tariffs, export restrictions, or geopolitical tensions may increase the cost of advanced chips and networking equipment. Since AI systems require large amounts of specialized hardware, any shock to the supply chain could delay capacity expansion or raise expenses. Macroeconomic uncertainty can also affect Alphabet’s enterprise customers. In a weaker environment, companies may delay cloud migrations, slow hiring, or reduce spending on digital tools. This could impact the growth rate of Google Cloud, even if the long term trend toward digital transformation remains intact.

Reasons to invest

YouTube is a reason to invest in Alphabet because it has evolved from a video sharing platform into a dominant global media ecosystem with multiple revenue streams, strong network effects, and expanding monetization opportunities across advertising, subscriptions, and commerce. First, YouTube is one of the most powerful platforms in the attention economy. It remains the number one streaming platform in the United States for nearly three consecutive years. That leadership in the living room matters. As viewing shifts from traditional television to connected TVs, YouTube is capturing a growing share of premium ad budgets that historically went to broadcast and cable networks. This positions YouTube not just as a digital platform, but as a structural winner in the long term shift of television advertising toward streaming. Second, YouTube has become a massive and growing revenue engine. In 2025, total YouTube revenue across advertising and subscriptions exceeded $60 billion. Advertising remains the largest contributor, with strong growth in direct response advertising and increasing traction in retail and small business demand generation. At the same time, the platform continues to innovate with formats such as shoppable ads, interactive mastheads, and creator partnerships, improving advertiser return on investment. As measurement tools and commerce integrations improve, YouTube becomes more than a brand awareness channel. It becomes a performance driven sales channel. Third, subscriptions are increasingly important. YouTube Premium, YouTube Music, and YouTube TV continue to grow, contributing to a broader base of recurring revenue. Alphabet now has hundreds of millions of paid consumer subscriptions across its services, with YouTube playing a central role. This recurring revenue stream reduces dependence on purely cyclical advertising budgets and strengthens the overall quality of Alphabet’s earnings. When users move from ad supported viewing to paid subscriptions, it may slightly reduce ad revenue in the short term, but it improves the overall economics of the platform and increases predictability. Fourth, YouTube Shorts has emerged as a major growth driver. Shorts now averages more than 200 billion daily views. In several countries, including the United States, Shorts generates more revenue per watch hour than traditional in stream formats. This demonstrates that YouTube is successfully adapting to short form video consumption trends and competing effectively with platforms such as TikTok. The ability to match changing user behavior while maintaining monetization strength is a key competitive advantage. Fifth, YouTube is expanding into commerce. Viewers increasingly trust product recommendations from creators, and YouTube is integrating shopping features directly into the viewing experience. Shoppable ad formats and improved brand creator matching make the platform more transactional. As social commerce grows, YouTube has the potential to capture a larger share of product discovery and purchase intent.

Google Cloud is a reason to invest in Alphabet because it has evolved into one of the company’s most important growth drivers, with accelerating adoption, improving profitability, and a central role in enterprise artificial intelligence. Over the past few years, Google Cloud has shifted from being a distant third player to becoming a primary engine of high quality growth. Revenue has expanded rapidly, and the segment has transitioned from losses to meaningful operating profitability. This change is important because it shows that Cloud is no longer just a strategic investment. It is becoming a scalable and increasingly profitable business that contributes materially to Alphabet’s overall earnings profile. A key driver of this momentum is enterprise demand for artificial intelligence. Businesses across industries are investing heavily in AI to automate workflows, improve customer service, enhance data analysis, and build new digital products. Google Cloud provides the full stack required for this transformation, including custom chips, computing infrastructure, data platforms, AI models such as Gemini, and enterprise AI agents. A large majority of Cloud customers now use parts of this AI stack, and those customers tend to adopt more products and deepen their relationship with the platform. Another important signal of strength is the significant growth in long term customer commitments. Enterprises are signing larger multi year agreements, and many existing customers are expanding usage beyond their initial contracts. The large and growing backlog provides visibility into future revenue and indicates that companies are making strategic decisions to build on Google’s infrastructure rather than experimenting on a small scale. Google Cloud also benefits from vertical integration. Alphabet designs its own AI accelerators while offering third party hardware options, giving customers flexibility. Its expertise in chips, networking, and data center efficiency allows it to deliver strong performance and cost effectiveness. As AI workloads become more demanding, efficiency and scalability become increasingly important competitive advantages. The business model is diversified across infrastructure, data analytics, cybersecurity, AI platforms, enterprise agents, and Workspace subscriptions. This creates multiple sources of revenue and reduces reliance on any single product line. Workspace itself remains widely adopted across businesses and public institutions, and its integration with AI tools increases its value over time. Strategic partnerships further strengthen the case. Leading global enterprises, software companies, and public sector organizations are building on Google Cloud’s AI platform. When major software companies use Gemini as the engine behind their own products, it reinforces Google Cloud’s position at the center of the AI ecosystem. Finally, the broader industry trend supports long term growth. Companies continue to migrate operations to the cloud and integrate AI into daily workflows. Cloud infrastructure is becoming foundational to modern business operations. As AI adoption accelerates, demand for scalable and secure computing platforms is likely to remain strong.

Search is a reason to invest in Alphabet because it remains the foundation of the company’s economics while successfully evolving to meet the AI era rather than being disrupted by it. First, Search continues to grow at scale. Usage reached record levels, and advertising revenue increased strongly, with growth across nearly all major industry verticals. This demonstrates that Search is not a declining legacy product. It remains deeply embedded in consumer and commercial behavior. Second, AI is expanding the opportunity rather than shrinking it. Alphabet has integrated Gemini directly into AI Mode and AI Overviews, transforming Search from a simple list of links into a more interactive, conversational experience. Users are engaging in longer and more complex sessions, and once they adopt AI powered features, they tend to use them more frequently. Queries in AI Mode are significantly longer than traditional searches, and many sessions now include follow up questions. This indicates deeper engagement and suggests that Search is evolving into a more powerful assistant rather than just an information index. Importantly, AI is also broadening how people search. A growing share of queries are now voice based or image based, and features like Circle to Search are available on hundreds of millions of Android devices. This reinforces Google’s advantage in distribution. By embedding new search experiences directly into Android and other platforms, Alphabet ensures that innovation is delivered instantly to a massive global user base. Third, AI is improving monetization. Historically, very long or complex queries were harder to match with relevant ads. With Gemini powered improvements, Google can better understand intent and generate relevant ad creatives. Tools like AI Max are enabling advertisers to reach new types of queries that were previously difficult to monetize. At the same time, small and medium sized businesses are expanding budgets as automation improves return on investment. This shows that AI is not just enhancing the user experience, but also strengthening the advertising engine. Fourth, Search benefits from powerful scale advantages. With nearly 90% global market share, Google remains the default gateway to online information. This scale generates enormous data advantages, which improve relevance and ad targeting. More users attract more advertisers, and more advertisers improve the ecosystem. That feedback loop is extremely difficult for competitors to replicate. Fifth, Search is deeply integrated into everyday life. It is used for shopping, travel, healthcare decisions, financial research, local services, and countless daily tasks. As AI enhances understanding and personalization, the value of Search increases. Instead of replacing Search, AI is being layered on top of it, making it more helpful and more embedded in user workflows.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 10,80, which is from 2025. I have selected a projected future EPS growth rate of 14% (Finbox expects EPS to grow by 13,9% per year over the next five years. Additionally, I have chosen a projected future P/E ratio of 28, which is twice the growth rate. This decision is based on the fact that Alphabet has historically had a higher P/E ratio. Lastly, our minimum acceptable rate of return is already set at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be $277,11. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Alphabet at a price of $138,55 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is called the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company is essentially its return on investment. The minimum annual return should be at least 10%. I calculate it as follows: The operating cash flow last year was 164.700, and the capital expenditures were 91.447. I attempted to analyze their annual report to determine the percentage of capital expenditures allocated for maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 64.013 in our calculations. The tax provision was 26.656. We have 12.067 outstanding shares. Hence, the calculation will be as follows: (164.700 – 64.013 + 26.656) / 12.067 x 10 = $105,53 in Ten Cap price.

The final calculation is referred to as the Payback Time price. It is a calculation based on the free cash flow per share. With Alphabet's free cash flow per share at $6,07 and a growth rate of 14%, if you want to recoup your investment in 8 years, the Payback Time price is $91,57.

Conclusion

I believe that Alphabet is a great company with strong management. The company has built a durable moat through its dominance in Search, powerful network effects in YouTube, structural distribution through Android and Chrome, vast infrastructure scale, and deeply integrated artificial intelligence capabilities. It has consistently generated high ROIC and strong free cash flow, which supports continued investment and long term value creation. At the same time, antitrust and regulatory risks remain important because Alphabet’s leading positions in Search, digital advertising, Android, and Chrome have made it a primary target for regulators in the United States and Europe, and ongoing lawsuits or potential remedies such as restrictions on distribution practices or forced divestitures could weaken its integrated ecosystem and affect long term profitability. Competition is also a real risk since Alphabet operates in rapidly evolving markets where new technologies, particularly generative AI, can change how users access information and how advertisers allocate budgets, and if AI driven alternatives reduce search engagement or rivals in cloud and mobile ecosystems innovate faster, growth and margins could come under pressure. Macroeconomic factors add another layer of uncertainty because a large share of revenue comes from advertising, which typically declines during economic slowdowns, while high interest rates, rising infrastructure costs, and supply chain disruptions can increase expenses and weigh on profitability. Despite these risks, YouTube remains a compelling reason to invest as it has evolved into a dominant global media platform with diversified revenue streams across advertising, subscriptions, and commerce, benefiting from strong engagement, leadership in streaming, growth in Shorts and connected TV, and an expanding subscription base. Google Cloud is another important driver, having developed into a major growth engine with improving profitability, expanding enterprise commitments, diversified services, and a central role in enterprise AI adoption, positioning it well for the continued shift toward cloud computing. Search remains the foundation of the business, continuing to grow while successfully integrating AI to deepen engagement and improve monetization, reinforcing Alphabet’s scale advantages and long term earning power. Overall, there are many attractive qualities in Alphabet, and buying shares at a the Margin of Safety price of $138 could represent a compelling long term investment.

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