Alphabet (GOOGL) — Fair Value

Date: 13 February 2026

Source: FY2025 Full Year Results (4 February 2026)

Historical Performance (2020-2025)

Metric	Observation
EPS growth	30% annually (average)
Share count	Reduced ~10% (buybacks)
Net borrowing	$0 → ~$28bn
Net asset value	$222bn → $415bn
Revenue growth (last 2 years)	14-15%
EPS growth (FY25)	+34% (from $8.04 to $10.81)
Margin	58.2% → 59.7% (improved)

FY2025 Results Summary

Metric	FY2025	FY2024	Change
Revenue	$402.8bn	$350.0bn	+15%
Net income	$132.2bn	$100.1bn	+32%
Diluted EPS	$10.81	$8.04	+34%
Operating income	$129.0bn	$112.4bn	+15%
Operating margin	31.6%	32.0%	-40bps

Capital Expenditure: The Big Story

Year	Capex	Change
FY2024	$52.5bn	—
FY2025	$91.4bn	+74%
FY2026E	$175-185bn	+91-102%

The capital expenditure on this company is massive. The 2026 guidance of $175-185bn represents nearly a doubling from the already elevated 2025 spend—and the 2025 spend was itself up 74% on 2024.

But they can afford it. Post-tax profit was $132 billion. The company generates sufficient cash to fund even this extraordinary level of investment, though free cash flow will be under pressure.

Profitability Outlook

I would expect profitability to take a hit—not just in the coming year, but likely for the next three years. I don't see the capital expenditure reducing anytime soon for these companies.

The issue: earnings growth is outperforming turnover growth. Last year's EPS grew 34% while revenue grew only 15%. For companies like Alphabet (and Amazon, Apple), this raises the question: how can they continue this into the future?

Perhaps it's different earning streams. We can also see that margin improved from 58.2% to 59.7% last year. But the scale of AI infrastructure investment will inevitably create depreciation headwinds—management has already flagged that depreciation (already up 38% in 2025 to $21.1bn) will "meaningfully increase" in 2026.

The Bull Case

I expect the growth rate to be 25% going forward. Why?

1. AI integration into advertising — Likely to improve advertising effectiveness and ROI for clients over the coming years

   
   

2. Google Cloud momentum — Q4 Cloud revenue up 48% to $17.7bn; annual run rate now exceeds $70bn

   
   

3. Enterprise AI adoption — General pickup in usability of integrated Google tools into businesses

   
   

4. Data advantage — Alphabet has a massive advantage over other AI companies through:

   • Android mobile systems (rich database of user behaviour)

   • Google Search indexing (the world's information)

   • Heavy usage of Google data systems and servers

   • Gmail, YouTube, and other products now getting Gemini integration

     
     

5. Gemini positioning — Currently one of the four front-running AI systems. The Gemini App has reached 750 million monthly active users.

Valuation

Metric	Value
EPS (FY25)	$10.81 (1,081 cents)
Growth rate	25%
Value opportunity	+4.4%

Rating: Fair Value

Share Price Dynamics

The share price has been on a general downward slope since the end of January—nearly a month of decline. This very much ties in with general sentiment and concerns about spending on AI-based products.

The market is wrestling with a paradox: every major metric beat expectations, yet investors are nervous about the sheer scale of capex.

Conclusion

Alphabet is executing well. Revenue exceeded $400bn for the first time. AI is being monetised across Search, YouTube, and enterprise. The balance sheet remains strong despite increased borrowing.

The concerns are real but manageable: capex intensity will compress margins and free cash flow in the near term; depreciation headwinds are coming; and the competitive dynamics of AI remain uncertain.

At +4.4% value opportunity, this is essentially fair value.

Rating: Fair Value / Hold

Sources: Alphabet Q4 FY2025 Earnings Release (4 February 2026); Company presentation; CNBC