To The Moon

Alphabet is no stranger to investor scrutiny. Every quarter, analysts pore over its advertising revenue, cloud growth, and now the headline-grabbing race in artificial intelligence. Yet what strikes me is how much noise often drowns out the fundamentals. At a forward P/E of around 22, Alphabet looks, in my view, far more compelling than the market’s obsession with AI soundbites would suggest.

Momentum hot, but valuation still holds the compass

A multiple that doesn’t scream bubble

When I look at Alphabet’s valuation, I see a technology giant with a market cap nearing $2.84 trillion trading at earnings multiples that feel grounded rather than frothy. $Alphabet(GOOGL)$ sits on a forward P/E of roughly 22.3—well below $Microsoft(MSFT)$ at 32.0, $Amazon.com(AMZN)$ at 34.3, and $NVIDIA(NVDA)$ at 38.2—so the relative discount is clear. What makes it more interesting is Alphabet’s free cash flow strength. Last year, operating cash flow hit $133.7 billion with levered free cash flow close to $50 billion. For a company still posting nearly 14% year-on-year revenue growth, that’s an enviable profile. The dividend is modest at a 0.36% yield, but management clearly has the firepower to return more capital to shareholders in the future.

Priced lower, yet profits speak louder than hype

One detail investors sometimes miss is the efficiency in Alphabet’s balance sheet. With $95 billion in cash and only $42 billion in debt, its net cash position is stronger than most peers. That gives it optionality not just to fund AI infrastructure but to make opportunistic acquisitions without risking leverage levels. In an era where many large caps are straining under debt piles, this cushion is underappreciated.

Advertising still pays the bills

It’s easy to forget that Alphabet’s core engine—advertising—is still growing at a pace most companies would envy. In the most recent quarter, revenue from ads was up by mid-teens percentages, with YouTube in particular delivering accelerating growth. The platform has quietly become a credible rival to streaming incumbents, benefiting from both short-form content and the increasing traction of YouTube TV. That mix is giving Alphabet a hedge against the gradual slowing of traditional search ad spend.

Cloud, too, has matured into a business that matters. Google Cloud generated strong double-digit growth, albeit from a smaller base than AWS or Microsoft Azure. Importantly, it has finally turned profitable, which is more than can be said for some rivals’ side businesses. I see this as a strategic play: Alphabet doesn’t need to dominate cloud, it just needs it to be a profitable complement to its AI models and enterprise data ambitions.

A little-known fact is how intertwined advertising and AI are in Alphabet’s model. Behind the scenes, its AI-driven ad tools have been quietly boosting return on investment for advertisers. This makes its AI spending less of a moonshot gamble and more of a margin enhancer over time. The irony is that while the market gets distracted by flashy demos of generative AI, the real monetisation is already happening in the humble, but lucrative, world of digital ads.

AI costs today, profits tomorrow

The elephant in the room is AI spending. Training large language models and running inference at scale isn’t cheap, and Alphabet’s capex is ballooning as a result. Margins, once comfortably in the mid-thirties, are now facing pressure. The operating margin sits around 32%, still healthy but showing signs of investment strain.

Here’s where perspective matters. Alphabet can afford to let margins dip for a while because of its sheer scale and profitability. Unlike some of its AI peers, it doesn’t need to prove survival—it just needs to prove monetisation. Whether it’s embedding AI in Google Workspace, enhancing ad targeting, or integrating generative search, I see multiple paths to extracting value from its research spend.

One insight I think investors often overlook is the network effect of data. Alphabet doesn’t just have a strong AI lab; it has billions of daily users feeding the models in real time. This feedback loop gives it a competitive moat that smaller challengers can’t replicate, no matter how clever their technology. While rivals like OpenAI have the buzz, Alphabet has the data flywheel, and in AI, data density is often more valuable than algorithmic novelty.

Competitive landscape: the battle is layered

Alphabet’s competition is formidable. Microsoft has embedded OpenAI into its productivity suite and Azure cloud, giving enterprises an easy reason to shift loyalty. Amazon continues to wield scale in cloud infrastructure. Meta is experimenting aggressively with open-source AI, aiming to undercut pricing.

Yet Alphabet’s breadth offers resilience. It doesn’t need to dominate every layer of the AI stack; it just needs to ensure its platforms remain indispensable. Search remains sticky, YouTube continues to capture attention spans, and Android anchors the mobile ecosystem. When combined with a 34% return on equity, the durability of Alphabet’s competitive position shines through.

Cash flow remains the foundation beneath Alphabet’s AI skyline

Verdict: still more substance than hype

Alphabet is priced neither like a bargain bin stock nor like an overhyped AI unicorn. At a forward P/E of 22, a profit margin above 30%, and a fortress balance sheet, it looks fairly valued with room for upside. Short-term margin compression is the price of admission for AI leadership, but long-term monetisation—from ads, cloud, and enterprise AI services—should more than offset it.

Valuation holds its weight, even against the AI spotlight

I believe the market is underestimating just how effectively $Alphabet(GOOGL)$ can convert AI into both revenue growth and operating leverage. Its valuation, while not cheap in absolute terms, feels modest compared to peers chasing the same narrative without nearly the same cash flow strength. For me, Alphabet isn’t just about AI hype—it’s about buying into a proven machine that still has levers to pull.

And if the worst comes to the worst, at least my YouTube binge-watching is helping the margins along.

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