Alphabet (GOOGL)
Publicidad / Cloud / IA
The dominant search engine + YouTube, with Google Cloud in escape velocity (revenue +82% in the second quarter, operating margin 35.6%). At ~$347 (~28× EV/EBIT) after the pullback on the capex shock: Fairly valued, with the Waymo optionality and the investment portfolio valued apart, and ad-tech antitrust as a structural risk.
- Price
- $346.92
- Intrinsic value (5y, base)
- $495
- Total annual return (5y)
- 7.6%
- Status (nominal)
- Fairly valued
- Margin of safety
- +14%
The essentials
- Search + YouTube are a dominant advertising machine (~42% operating margin); Google Cloud is the second engine, which accelerated to +81.8% in the second quarter with the operating margin at 35.6% and already includes the sale of TPU hardware.
- GAAP net income ($244bn TTM) is inflated by ~$135.7bn (H1) of unrealized gains on equity investments → valued on the operating result (EV/EBIT), not P/E.
- AI capex surged to $132.4bn TTM (the first half annualizes to ~$161bn): it is investment, but the incremental return — beating the cost of capital — is the test of the case, and its shock sank free cash flow and the stock. Waymo and the investment portfolio are valued separately.
Intrinsic value — two valuation methods
Total return at 5 years: 7.6%/year = 7.4% appreciation + 0.3% dividend. The target price ($495) is ex-dividend; the $5 in dividends collected over 5 years are added separately.
By both methods, the value today (DCF $349 · Multiples $402) exceeds the market price ($347).
Pillars of the analysis
The verdict — today vs 5 years
Today — fairly valued: at $347 trades ~13.7% below its value discounted to today (~$402); the discount is positive but does not reach the margin of safety we require (≥38%).
At 5 years — En valor: the target price ($495) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.
The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$250.
Thesis
The business
Alphabet is a very high-quality business: Search and YouTube form a dominant advertising machine at ~42% operating margin, and Google Cloud contributes a second engine that accelerated to +81.8% in the second quarter with the operating margin inflecting to 35.6%. Return on capital is very high and the reinvestment runway — AI compute — is wide. The counterweight is record capex ($132.4bn TTM, the first half annualizes to ~$161bn) that must be judged by its return and that today depresses free cash flow, and a GAAP net income inflated by revaluations of investments that requires looking at the operating result instead.
The valuation
It is valued on a single multiple over the operating result (EV/EBIT): net income is distorted by unrealized equity gains, so the operating result is the clean base. Other Bets (Waymo) and the equity investment portfolio ($198bn) are treated separately, as an option.
The base scenario projects a value of ~$495 per share over five years, an annual return of ~+8% from the current ~$347. At today's price the stock trades at ~28× the operating result and cheapens to ~14× over five years as the operating result compounds. After the second-quarter results the stock fell despite strong better-than-expected revenue growth: the market penalized the capex shock ($132.4bn TTM) and the depressed free cash flow, which improved the entry price while intrinsic value stayed stable.
The margin of safety
The verdict is Fairly valued: It trades close to intrinsic value, far from the required margin of safety.. At ~$347 the expected return (~+8%) falls short of the required average return (10%): the stock compounds value over five years, but the discount to its value today is small and falls well short of the required margin of safety. A margin of safety, if it appears, would come from Google Cloud and AI compounding faster than the base case, or from a lower entry price.
What to watch
Three fronts. The ad-tech antitrust case, whose remedy could be structural (unlike Search's, which was conduct-based). Generative AI disruption to Search: if AI overviews erode ad clicks, the main engine suffers. And capital allocation: AI capex is enormous, and its incremental return — beating the cost of capital — is the central test of the case, quarter by quarter.
Educational / informational. Does not constitute investment advice.