Alphabet Inc. (GOOG) stock intrinsic value fair value estimate & owner earnings analysis

Alphabet earns most of its money from advertising on Google Search, YouTube and the Google Network, plus a fast-growing Google Cloud business and subscriptions, apps and devices. In 2025 revenue was $402.8 billion: Search and other $224.5 billion, YouTube ads $40.4 billion, Network $29.8 billion, subscriptions, platforms and devices $48.0 billion, and Google Cloud $58.7 billion (up 36% from $43.2 billion). Revenue has risen every year from 2014 to 2025. Network revenue is the exception inside the total: it slipped from $31.3 billion in 2023 to $29.8 billion in 2025. How we measure it. We start from cash generated by operations, remove the swing from working capital, subtract stock-based pay as a real cost, and subtract the capital spending needed to keep the business running, separating out spending that is for growth. Per share, this gives $1.30 (2016), $0.70, $0.86, $1.63, $2.25 (2020), $4.68, $3.52, $4.26, $5.16 (2024) and $4.49 (2025), on 12.23 billion diluted shares in 2025. We use the median of 2021 to 2025, $4.49, as the earning power today. Earlier years are left out because the business was much smaller and spent far less on data centers. The 2025 figure is $54.9 billion, 13% below 2024's $5.16. The big issue is spending on data centers and chips. Capital spending rose from $32.3 billion in 2023 to $52.5 billion in 2024 and $91.4 billion in 2025, against $21.1 billion of depreciation on property in 2025. In the first half of 2026 it was $80.6 billion, versus $39.6 billion a year earlier. Revenue was $229.7 billion, up 23%, and cash from operations $84.9 billion, up 33%, but cash from operations minus stock pay minus capital spending was negative $10.4 billion, against positive $12.7 billion in the first half of 2025. Our method counts only a modest slice of this spending as growth-related, so it counts most of it as a cost of staying in business. The upkeep our method counts for 2025 is $84.2 billion, about four times that year's depreciation, so it is probably harsh, but we do not credit the payoff until it appears in cash. Growth check. Owner earnings per share fell 13% in 2025. Our base case assumes 2026 is roughly zero, in line with the first half of 2026 described above, and that from 2027 earnings return to $3.91, which is the $4.49 level reduced by that same 13%. We assume no growth after that. The reason a recovery is credible is the $242.8 billion of contracted Cloud-related revenue backlog at the end of 2025, just over half of which is due to be recognized within 24 months. That backlog is committed customer demand, but just over half of it works out to roughly $60 billion a year, similar to Cloud's 2025 revenue of $58.7 billion, so we treat it as support for keeping earnings level and not as extra growth. We did not credit market expansion, AI products, or share gains, because none is contracted or demonstrated in cash yet. Base case: $61.48 per share. Zero in 2026, $3.91 a year from 2027 with no growth, held indefinitely because the Search, YouTube and subscription franchise has grown every year for over a decade. The legal risks are carried in the bear case. Bear case: $38.62 per share. The December 2025 court judgment in the US Search case restricts how Google distributes its products and requires sharing certain search data and offering syndication to competitors; Google has appealed, as have the government plaintiffs. The US advertising technology case awaited a final remedy ruling as of the February 2026 annual report, and the government has asked for structural remedies; Network already has declining revenue. Capital spending stays high. We assume zero earnings in 2026 and 2027, $2.00 in 2028, then $3.52 (the lowest year in the last five) in 2029, drifting down 2% a year from there. A European Commission advertising technology decision in September 2025 led to a $3.5 billion charge, with bank guarantees posted instead of cash. Bull case: $99.43 per share. Capital spending converts into revenue as the backlog is delivered. Earnings are $2.00 in 2026, $4.49 in 2027 and return to $5.16 in 2028, the record high. They then grow 5% in 2029, tapering by half a point a year to 2% in 2035, then hold level. That growth is a fraction of recent revenue growth (15% in 2025 and about 10% in 2022). What would make this wrong: if the spending turns out to have earned strong returns, then owner earnings are understated by our method; if the search and advertising technology rulings force larger changes than we assumed, the bear case is too kind. We could not separate how much of 2025's $12.9 billion cash-flow benefit from accrued expenses and other liabilities was the unpaid European fine and how much was other timing, so working-capital movements were removed entirely. Margin-of-safety price: $33 per share, a discount to the bear case because spending is uncertain and the legal outcomes remain open.