AI ads starting to pay off
75 m daily AI Mode users with ad yields now matching search; Gemini, YouTube, and Waymo integrations expand monetisation potential.
Alphabet: Alphabet’s moat is solid in the short-term, stronger in the long-term
Alphabet’s breadth is its moat. From AI and ads to cloud, quantum, and self-driving, every unit feeds the next, building a compound engine for long-term value.
NASDAQ:GOOG
$281.82-0.03%
Updated: Oct 30, 2025
Technology
megausa
Bull & Bear Case
An overview of the main reasons to invest and the key risks involved.
Bull Case
Cloud profits rising fast
Revenue up 34% Y/Y to $15.2 bn as higher-margin AI infrastructure and enterprise tools lift profitability.
YouTube ads driving higher returns
Ads up 15% Y/Y to $10.3 bn; AI targeting boosts conversion >40%, attracting larger ad budgets.
Bear Case
Antitrust Margin Compression
DOJ and EC rulings could cap margins near 30%, limiting EPS upside.
AI Search Transition Execution
Search monetisation may lag as users adopt AI formats faster than ad models evolve.
Ad Budget Volatility
Ads still hold~80% of revenue; 10–15% budget cuts and $85 bn AI capex amplify downside risk.
Executive Summary
Alphabet is the digital backbone for billions, organizing information and powering daily decisions across Search, YouTube, Android, Cloud, and AI. Its business model is driven by advertising, over half of revenue comes from search, YouTube, and display ads, but subscriptions (like YouTube Premium), enterprise cloud infrastructure, and AI services are moving up fast. Scale unlocks resilience, with Alphabet blending consumer reach and enterprise trust. The company invests heavily in technical infrastructure and R&D, with strong returns on equity and robust operating cash flow underpinning its giant reinvestment engine.
For investors, Alphabet is a high-margin growth compounder entering an AI-intensive era from a position of financial strength. The urgency comes from AI adoption, cloud migration, and shifting user behaviors (e.g., multisearch, voice, and creator platforms). Regulatory pressure is rising, but Alphabet holds massive cash reserves, a fortress balance sheet, and unmatched data capital. Big tech faces new rules, but Alphabet’s machine learning scale and foundational platforms are driving digital transformation globally, building new moats as AI, content, and commerce converge.
Investment Thesis
Overview of buy and sell case of the business.
Why Invest?
Key pieces of information about the business that you need to know about.
AI ads starting to pay off
Google’s AI Mode now has 75 million daily users across 40 languages. Ads placed inside AI Overviews are earning about the same as traditional search ads, and the rollout is still early. As AI Overviews expand, Google gets more ad space and data to monetise. Integrating Gemini and YouTube into Waymo cars from 2026 could extend ad reach beyond the search page into real-world products.
Cloud profits rising fast
Google Cloud posted $15.2 billion in revenue (+34% Y/Y) with operating margin rising to 23.7% from 17.1%; execution is centered on higher‑margin AI infrastructure and enterprise AI solutions plus ongoing cost efficiency, which together can lift consolidated earnings resilience even if ad growth moderates.
YouTube ads driving higher returns
YouTube ads revenue rose to $10.3 billion (+15% Y/Y) in Q3 2025, as Shorts became more profitable than traditional video ads in the U.S. New AI-driven targeting tools have improved advertiser conversion rates by over 40%, giving marketers better returns and pushing more budget toward YouTube.
Catalysts
The key events that could drive investment opportunities and shift markets.
AI ads rollout to new markets: If ads in AI Overviews sustain baseline monetization while rolling into more countries, Search gains more queries and surfaces without compressing ad yield; that supports upside to ad revenue quality and reduces downside from mix shift fears.
Cloud margins as valuation anchor: Each step-up from the current 23.7% margin confirms operating leverage on a $15.2 billion quarterly base. Margin beats usually support Alphabet’s multiple even if macro ad demand softens.
YouTube AI tools to widen ad spend: Creator and advertiser tools that lift conversion value and Shorts monetisation redirect budgets toward YouTube, expanding effective ad inventory and sustaining revenue growth even as viewing shifts.
Waymo launches in new city: New city launches and in‑car Gemini/YouTube experiences create fresh, high‑intent surfaces in mobility; progress in clustered cities can lift sentiment and optionality value without needing near‑term P&L.
AI infrastructure to drive non-ad growth: Owning TPU capacity and offering Nvidia GB300 instances on Cloud strengthen Alphabet’s AI compute moat. Rising utilisation drives durable revenue growth less tied to advertising cycles.
Quantum computing as long-dated upside: The Willow chip’s 13,000× speed gain marks a verified R&D milestone. Even partial commercialisation could form a new earnings stream, a low-probability, high-impact upside for long-term holders.
Key Risks
Key pieces of information about the business risks that you need to know about.
Antitrust Margin Compression
Post-DOJ settlement and a €3.5bn ($3.8bn) EC fine cut Q3 operating margin to 30.5% from 32.3%. Broader data-sharing and exclusivity limits could cap long-term margins near 30%, constraining buyback-driven EPS growth.
AI Search Transition Execution
Successful migration from traditional to AI-enhanced search is not guaranteed. If user behaviour shifts faster than Google’s ability to adapt, revenue earned per search (query yield) could temporarily compress.
Ad Budget Volatility
Ads remain ~80% of Alphabet revenue. A 10-15% cut in global ad budgets typically reduces Alphabet EPS. With AI capex running ~$85bn annually, fixed-cost leverage amplifies downside in any cyclical slowdown.
Follow the Experts
Quickly navigate key insights from industry experts and leverage their knowledge and market intelligence.
Expert Insights
youtube
“When a business becomes a verb, that’s usually a pretty good sign about the motor on the business”
article
“Ackman and his team think that because of its incredibly popular internet-enabled products and services, Alphabet has unmatched distribution. This gives the business an advantage when it comes to introducing new AI features for immediate adoption.”
article
“We don't have to scrutinize Ackman's investments and public comments to pick his favorite AI stock. His Pershing Square Capital Management hedge fund owns only 10 stocks…and they belong to the same company - Alphabet”
Expert Insights
x
'From $25M to $3T. The rise of Alphabet is a masterclass in compounding innovation — from a search bar in ’98 to Gemini AI in 2025. CAGR: •Revenue: +42% •EBIT: +47% Google didn’t just scale — it reinvented itself every decade.'
Expert Insights
article
“Mahaney has a tactical outperform call on Alphabet's stock, saying Wall Street expectations for search, cloud and YouTube look "relatively modest.”
youtube
“the proof in the pudding for Google is going to be do people believe the search product is better than it was before and do people search more because of it…the tentative answers we have are positive.”
article
“Mark Mahaney has given his Buy rating due to a combination of factors related to Alphabet’s current market conditions and prospects”
Expert Insights
article
“Google will maintain its upsurge in the entirety of 2025 thanks to its superb AI research and other market growth factors.”
Expert Insights
youtube
“Alphabet is best-positioned to ride the next wave of AI-enabled search. Alphabet’s AI edge lies in a combination of its proprietary LLM, Gemini, unique data and its monetization know-how”
article
“Despite the hype around the rise of ChatGPT, Google remains the dominant search engine, accounting for 90% of global search and only down a few percentage points since the emergence of AI-driven platforms.”
Expert Insights
youtube
“In an expensive market, this (Alphabet) is the one Mag 7 stock that I really like”
Expert Insights
article
“Wood said software companies could be the next big opportunity in the artificial intelligence (AI) industry. If Wood is ultimately right…here’s why Google parent Alphabet could be among the biggest winners.”
article
“Big Tech firms like Apple and Google’s parent company, Alphabet, are likely to deploy artificial intelligence to maintain industry dominance”
Expert Insights
article
“What hasn’t changed — because it is the company’s nature, and thus cannot — is the reliance on scale and an overwhelming infrastructure advantage. That, more than anything, is what defines Google”
Expert Insights
x
"Obligatory Alphabet earnings note -- while every other division grew like gangbusters, the Network business declined by 1.2% YOY. Time to break-up and spin out..."
Investor Materials
Access the most recent investor updates published by the company.
Key Resources
Q3 2025 Earnings
ArticleQ2 2025
PDF2024 Annual Report
PDFExternal Insights
A curated collection of third-party content relevant to the company and sector to help inform your investment decision.
Analyst Commentary
Alphabet Fat Gladiator Blog
ArticleShared with Dropbox
The AI Race
AI Spending To Exceed A Quarter Trillion Next Year
ArticleBig Tech’s AI spending continues to accelerate at a blistering pace, with the four giants well on track to spend upwards of a quarter trillion dollars primarily for AI...
Alphabet's Isomorphic
AI-developed drug will be in trials by year-end, says Google’s Hassabis
ArticleFounder of Isomorphic Labs aims to develop a drug in oncology, cardiovascular or neurodegeneration areas
Research
AI-developed drug will be in trials by year-end, says Google’s Hassabis
Founder of Isomorphic Labs aims to develop a drug in oncology, cardiovascular or neurodegeneration areas
Introducing Gemini 2.0: our new AI model for the agentic era
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Google Investment Case
Search, Cloud, YouTube, and AI
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Team
Meet the experienced professionals leading our organization
Sundar Pichai
Anat Ashkenazi
Philipp Schindler
Thomas Kurian
What the Pro's Are Asking
Here are the questions that professional investors are asking before making an investment decision.
Can Google Cloud translate AI backlog into durable margins?
The thesis rests on three levers, AI infrastructure demand, platform standardization on Vertex and Gemini, and expanding security and data workloads. Watch remaining performance obligations conversion, gross margin progression as utilization rises, and the mix shift toward higher‑margin platform services. If large, multi‑year AI contracts move from pilot to production at pace, operating leverage should compound, turning backlog into sustained revenue growth and improving profitability.
Is YouTube at the start of a monetization upcycle?
AI creation, translation, and personalization tools are lowering production frictions, lifting quality and upload velocity, which should compound watch time and CTV share. The monetization path runs through higher ad yield, better targeting, shoppable video, and subscription ARPU expansion. Track watch time per user, RPM, Shorts monetization parity, CTV ad growth, and Premium churn. If creator economics improve alongside CTV ad budgets, a multi‑year yield expansion is plausible.
Will rising AI CapEx earn superior returns versus peers?
Returns hinge on performance‑per‑dollar from custom TPUs, data center scaling, and end‑to‑end AI stack adoption across Search, Cloud, and Workspace. The scorecard is inference latency, training throughput, cost curves, and downstream revenue per compute dollar. If Alphabet sustains technical leadership and captures workload density on its stack, CapEx intensity can be self‑funding through higher utilization and margin mix, offsetting depreciation drag over a 2 to 4 year horizon.
How do regulatory remedies reshape defaults, data, and distribution?
New remedies can raise compliance costs and alter distribution economics, particularly for default placements and data access. The practical questions are TAC rate shifts, any mandated changes to ad tech flows, and constraints on combining datasets across surfaces. Investors should monitor regional user choice screens, auction design tweaks, and data portability requirements. If Alphabet maintains scale advantages while adapting product and contractual terms, structural profit pools can remain resilient.
How will AI Overviews impact Search monetization and volume mix?
AI Overviews expands query types and lifts engagement by enabling complex, multimodal prompts, but near‑term monetization depends on integrating shoppable and high‑intent links without degrading user trust. Key markers to track are paid‑click growth, cost‑per‑click stability, and ad load within AI results, plus advertiser adoption of new AI‑native formats. The base case is volume expansion offsetting any initial ad density dilution, with monetization improving as ranking and formats iterate.