🤔What is the Market Momentum column about?🤔
I don't know if you're aware of this, but a thorough fundamental in-depth analysis can take 40-50 hours. As an investor, it's impossible to put that much energy into analyzing each company if you want to effectively manage a long enough watch list. That's why I created the Market Momentum column, which provides a snapshot of each stock, currently Alphabet (GOOGL), and roughly outlines current events. It is not an in-depth analysis, but rather just food for thought based on the current state.
My goal is not to give daily trading tips or analyze technical patterns. Instead, I provide quick, to-the-point fundamental mini-analyses that help you filter. These impulses help you keep in mind whether the current price movement of Alphabet (GOOGL) or another market participant is worthy of deeper investigation or is just a passing market phenomenon.
You can find the share subpage with detailed information here: GOOGL stock page
If you are looking for in-depth analyses of the site, click on the link below: iO Charts stock analyses.
📒Table of Contents📒
I have created a table of contents to make it easier for you to navigate the content:
- 🎢 What does Alphabet (GOOGL) do?
- 💵 Current status of Alphabet (GOOGL) and its competitors
- 🤵 Alphabet (GOOGL) metrics
- ✅ Alphabet (GOOGL): will you get used to it or will you run away?
- 📝 Thesis summary
❓ What does Alphabet (GOOGL) do? ❓
Alphabet (GOOGL) is the world's most visited internet search engine and also one of the most profitable advertising machines ever built. Google search is used for nearly 14 billion queries per day, YouTube has become the world's second largest search engine, and Gmail and Chrome have become so deeply embedded in everyday digital life that most users don't even notice where Google ends and the internet begins. Who doesn't have a Gmail email address? And how many of you use Chrome or a Chrome-based browser? Right.
The business model rests on three legs. The first and by far the biggest is Google Services: Search, YouTube and other advertising platforms, which generate nearly 75-77% of revenue. The second is Google Cloud, which is one of the fastest growing and increasingly profitable segments: In 2025, it generated annual revenue of USD 70 billion and closed the quarter with a contract backlog of USD 240 billion. The third is Other Bets — this includes Waymo's self-driving car division, Verily's life sciences division, and other long-term experiments that are currently burning far more money than they are generating. Alphabet is one of the best-known spawners, or companies that constantly grow new revenue-generating legs.
Alphabet's search monopoly has made it what it is today since it went public in 2004. The question every investor now faces is: Will artificial intelligence complement this monopoly or slowly erode it?
🏆 Current status of Alphabet (GOOGL) and its competitors 🏆
Alphabet's competitive position seems both solid and surprisingly vulnerable, depending on which segment you look at. I've heard it said many times about Alphabet that it's a mountain that can't be moved, only climbed.
In search, nearly 90% of the market is in the hands of Google. This is an almost unrepeatable infrastructure built over decades: the volume of indexed data, the fine-tuning of ranking algorithms, and the inertia of user habits together create such a moat that Microsoft Bing has not been able to meaningfully break through even with the OpenAI integration.
Google Cloud ranks third in the cloud market behind Amazon AWS and Microsoft Azure, but it closed Q4 with 48% annual revenue growth in 2025 and a 30% operating margin – the latter was only 17.5% a year earlier. Google Cloud’s backlog has jumped to $240 billion, meaning customers are already booking up capacity for the next few years. This segment is clearly accelerating.
Amazon, TikTok/ByteDance, and Meta are increasingly serious threats in the advertising market. Amazon is particularly noteworthy: purchase intent can now be accessed directly on the Amazon platform, which is one of the most powerful advertising contexts, and this is siphoning traffic away from Google Search.
In the AI race, Alphabet (GOOGL) is in a fortunate position: Google DeepMind is one of the world's strongest AI research groups, Gemini models received serious market response in 2025 - the number of monthly active users of the Gemini App has increased to 750 million - and Google Cloud is the only cloud provider that offers its own developed AI chips (TPU) in addition to Nvidia GPUs. This is a serious differentiator, especially for price-sensitive enterprise customers. However, Anthropic's Claude and Sonnet models have come up pretty hard, and I'd even venture to say that they're currently better than the Gemini. However, in image generation, Gemini's Nanobanana is still very powerful, so the competition is heating up, but Google is in the immediate forefront.
🎢 Alphabet (GOOGL) metrics 🎢
📊 Exchange rate and CAPEX shock
Alphabet's share price has corrected 10-12% from its late-2025 highs and continued to fall after its February 2026 quarterly report, even though Alphabet beat analyst consensus on every major metric. The reason? The 2026 CAPEX forecast was brutal: USD 175-185 billion, which is almost double the USD 91.4 billion capital investment in 2025. The market immediately punishes this, as we saw in the case of Meta.
However, it’s worth putting the current decline into perspective: Alphabet’s share price fell nearly 44% in 2022, partly due to the slowdown in the advertising market and partly due to fears of the emergence of ChatGPT. Those who didn’t sell then realized one of the best returns among large tech stocks in 2023-2024. So the CAPEX panic is not a new phenomenon for Alphabet – the question is the same as always: will the investment pay off? Exactly the same as I wrote about the previous 3 tech companies:
- Microsoft (MSFT) – The paper is falling, who knows where it will stop?
- Amazon (AMZN): the Swiss Army Knife of the Digital Economy
- Meta Platforms (META) – How much is Zuckerberg's AI bet worth?
🪙 Valuation: EV/NOPAT vs. price
Alphabet currently trades at a forward P/E multiple of 26x, which is around the historical average. More importantly, its revenue growth rate is similar to Meta-Microsoft, its cloud services segment is growing faster, and its cash generation is one of the strongest in the industry. And this is a very good example of how P/E ratios can mislead investors, because Alphabet (GOOGL) has historically not been cheap by any other metric. Just look at the EV/EBITDA multiple and you'll see that this is not a discount.
The usual NOPAT yield shows something completely different, especially since Alphabet's (GOOGL) stock traded around 85 USD in 2023 and 150 USD in April 2025, with extremely high values of 6.7 and 5.5%. However, this is not enough to determine whether the stock is cheap, since you don't know what the historical average was, but I calculated this for you:
- 🎯NOPAT yield currently: ~2.9%
- 🕒NOPAT yield 3-year average: 4.83%
- 📊NOPAT yield 5-year average: 4.28%
- 🗓️NOPAT yield 10-year average: 3.85%
- 📜NOPAT yield 20-year average: 3.92%
The NOPAT yield (calculated from EV/NOPAT) is currently around 2.8-2.9%, which is a much higher valuation than the average of the past 5-7 years. This means that the market believes that Alphabet (GOOGL) will soar and that the huge costs will not bring down the world's 3rd largest company by market capitalization.
🫰 Revenue and profitability
The numbers speak for themselves: Alphabet is set to cross the $400 billion annual revenue mark for the first time in 2025, representing 15-16% annual growth. Q4 2025 brought in revenue of $113.83 billion, an increase of nearly 18% year-over-year. Net profit increased by 30% compared to the same period last year.
Google Cloud is the most exciting story among the segments: not only is the 48% revenue growth remarkable, but also the sharp improvement in profitability. Cloud's operating margin jumped from 17.5% to 30.1% in Q4 in a single year, indicating that scaling is taking off and the capital previously spent on capacity building is starting to pay off. And the market thinks that the huge CAPEX will not change this, as it has worked very well so far.
Google Services (Search + YouTube + other) had an operating margin of 41.9% in Q4, which is an excellent number, but it is the segment that is most structurally threatened by AI. YouTube’s annual revenue is set to surpass $60 billion in 2025 from combined advertising and subscriptions, a business that is beyond the reach of most S&P 500 companies. What’s even more outrageous is the size of the backlog: In the image below, you can see that 242 billion USD of work has accumulated that has already been contracted by the company but has not yet been financially completed (and thus not yet recognized as revenue in accounting). So Alphabet (GOOGL) has a mountain of orders ahead, which is usually a very good sign.
The Other Bets segment is currently heavily loss-making: it generated an operating loss of $3.6 billion in Q4 on revenue of $370 million, which includes a $2.1 billion Waymo compensation item. Waymo completed 15 million trips in five major US cities by the end of 2025 - it is the only self-driving taxi service that can demonstrate real, continuous commercial operation. But Tesla's self-driving system also launched as a taxi service in areas previously served only by Waymo in 2025, and it is questionable whether Waymo can continue to maintain its market leadership role.
🤞 Efficiency: free cash flow and ROIC
Alphabet’s free cash flow in 2025 was $73.3 billion, an industry-leading number that suggests the business engine is generating enough cash to allow for capital allocation flexibility even with massive investments. The company ended 2025 with $126.8 billion in cash and securities (mostly short-term government bonds) and just $46.5 billion in long-term debt, for a net cash position of nearly $60 billion.
ROIC (return on invested capital) has been stable at 30-35% for the past five years, placing Alphabet in the top 25% of the industry. A doubling of CAPEX in 2026 will put pressure on this metric, but if Cloud and AI-based ad revenue grow quickly enough, the downturn will be temporary.
🎲 Risk factors: debt, SBC, regulation
The issue of Alphabet's (GOOGL) debt can be resolved relatively easily:
- 💵cash: 126.8 billion USD
- 👛net debt: -60 billion USD (debt-cash)
- 💵net profit: 132 billion USD
The debt issue is not a serious problem for Alphabet: the USD 80 billion of negative debt (i.e. net cash position) in itself represents a sufficient safety net, and the company can more than pay its annual debt service from a fraction of its operating cash flow. It is noteworthy, however, that Alphabet issued nearly $37 billion in bonds in 2025 (including $24.8 billion in a single quarter) – like Meta, Alphabet is increasingly turning to the bond market to finance its AI infrastructure.
Stock-based compensation (SBC) is also not negligible, especially in the Waymo segment, where the one-time item of $2.1 billion in Q4 was related to the financing round. SBC is offset by the regular share buyback program: $5.5 billion was repurchased in Q4. However, the story here is the same as in the case of Meta or Microsoft: this is the only way to retain great talent, this is the nature of technology companies, in return for huge growth.
The regulatory risk for Alphabet is the most serious of all large tech companies. The European Commission imposed a $3.5 billion fine in Q3 2025 in an antitrust case. The US Department of Justice's search monopoly case is still ongoing, and the worst-case scenario - a mandatory separation of Chrome or Android - is unlikely, but not zero. I don't think the market multiples really reflect these risks, but there is more optimism surrounding the company.
💵 Alphabet (GOOGL): will you get used to it or will you run away? 💵
As with all companies, there are always two narratives at Alphabet, often called the battle of the bulls and the bears. Optimists and pessimists fight their eternal battle, but no one knows in advance who will be right. However, there are a few ideas that can support both sides in the case of Alphabet (GOOGL):
🐂 Bulls say (Optimistic scenario):
- 🪐 Search is not dying from AI – quite the opposite: Google's search traffic in Q4 2025 was at an all-time high, despite AI Overviews now appearing for all major queries. AI Mode reached 75 million daily active users and search queries doubled in the segment. It seems that AI is not taking away Search, but rather expanding it.
- 🌐 The Cloud segment is the next growth engine: With 48% annual revenue growth, 30% operating margin, and a $240 billion contract backlog, that's not a promise, it's almost guaranteed growth. If Google Cloud can reach AWS's current profitability levels in the next three years, that alone could justify Alphabet's current valuation.
- 🪙 A net cash position of USD 80 billion gives enormous flexibility: buybacks, acquisitions, dividends – Alphabet's room for maneuver is almost unlimited, which provides a safety net for shareholders in an uncertain macro environment.
📌In practice: My own experience is that SEO tools are also starting to provide websites with AI scores, and artificial intelligence is increasingly relying on the FAQ section of websites, highlighting definitions, etc. So it works, the question is whether this will lead to additional revenue in the long run.
🐻 Bears say (Pessimistic scenario):
- 🌴 The structural erosion of Search is slow but real: GenAI chatbots – OpenAI ChatGPT, Anthropic Claude, Perplexity – are sniffing out exactly the type of query that is most profitable for Google: informative, non-transactional search. If the average ad revenue per search starts to decline, it will affect a $150+ billion revenue base.
- 🩹 $175-185 billion CAPEX will absorb free cash flow: Free cash flow of USD 73.3 billion in 2025 is expected to decline to USD 40-50 billion in 2026. This is still a serious number, but this decrease is priced into valuation models based on multiples.
- 🔍 Regulatory risk is asymmetric: The best case scenario is that everything stays as is. The worst case scenario is a mandatory separation of Chrome and Android or the loss of the Apple contract. These are unlikely but not impossible scenarios, and they are not fully priced into the stock price.
📝 Summary of Alphabet (GOOGL)'s situation 📝
Alphabet is both the most stable and interesting stock in the tech sector today. A company generating $400 billion in annual revenue, nearly $80 billion in net cash, and $73 billion in free cash flow is trading at a forward P/E multiple of 26x – that in itself is remarkable. The more I write it, the more brutal it seems. The market is pricing in two things at once: the free cash flow-diluting impact of the $175-185 billion CAPEX, and the faint but real possibility of long-term erosion of Search, which is now largely offset by brutal growth and a huge backlog. This makes it more of an expensive stock than not at the moment.
If Google Cloud continues its momentum in 2025 and its Search AI integration truly translates into query growth, the current multiple will look cheap in retrospect. However, if CAPEX fails to deliver the expected Cloud ROI and the search leg gradually loses market share, the current valuation could start to fall sharply. In any case, Alphabet is one of those stocks worth keeping on your watch list.
Remember, this mini-analysis is not a substitute for your own research, but it will help you decide whether it is worth devoting dozens of hours to an in-depth analysis of Alphabet (GOOGL) or whether it is enough to just keep the paper on your watchlist.
If you want to analyze further, use iO Charts' stock finder and portfolio manager, which you can access here: iO Charts.
Frequently Asked Questions: Professional Questions About Alphabet (GOOGL)
Is AI really a threat to Google Search?
Not in the short term – the 2025 data actually shows that the introduction of AI Overviews and AI Mode increased the number of queries, not decreased them. The real question comes in the medium term: if users increasingly look to AI chatbots for informative answers, Google’s advertising conversion rate may decline. Transactional searches (e.g. “shoe store Budapest”), on the other hand, are harder to replace with chatbots – and these are the most profitable queries.
What is TPU and why is it important to Google?
The TPU (Tensor Processing Unit) is Google's own AI chip designed specifically for machine learning tasks. The seventh-generation Ironwood TPU is due out in 2025. It's strategically important because it's the only cloud provider that doesn't rely exclusively on Nvidia GPUs - which provides both pricing flexibility and security of supply, especially at a time when Nvidia chips are in such high demand that allocation itself is a strategic weapon. You may also know mobile Tensor SoCs from Google Pixel phones.
What is Waymo and when will it become profitable?
Waymo is Alphabet's self-driving taxi division, which completed 15 million trips in five major US cities by the end of 2025. Waymo is currently the only fully commercial robo-taxi service in the US, but Tesla's self-driving taxi program also launched in 2025. The time horizon for profitability is uncertain - the majority of its $16 billion funding round in early 2025 was funded by Alphabet, indicating that the company is treating Waymo as a long-term option, not a short-term revenue stream.
Why would a company with $80 billion in cash issue bonds?
This is a rational capital allocation decision: by issuing bonds, Alphabet obtains a cheap, tax-optimized source of CAPEX while preserving cash for buybacks, acquisitions, and dividends. In today's interest rate environment, the financing cost of issuing bonds for a giant company with a near-AAA rating is many times lower than the alternative yield loss on retained capital.
What is the Other Bets segment and why isn't Alphabet selling it?
Other Bets includes experimental companies like Waymo (self-driving cars), Verily (life sciences), Isomorphic Labs (AI-powered drug development), and others. They collectively lose billions of dollars a year. Alphabet is holding them because each could open the door to a potentially gigantic market – Waymo, for example, could open the door to the entire passenger transportation market, which is worth trillions of dollars globally. It previously acquired smartwatch maker Fitbit for this purpose in 2021.
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