GOOG — Alphabet
Search is not dying. The new question is how much equity it takes to defend it.
Alphabet is Search, YouTube, Cloud and a full-stack AI infrastructure build sitting on top of absurd distribution. The operating numbers are making the 'AI kills Google' obituary look pretty awkward. The thing I am watching now is how much capital, and specifically how much new equity, it takes to defend the franchise.
The “AI kills Google” thesis keeps running into one mildly inconvenient problem: Search revenue is still growing.
Why I care about this one
Search is still one of the best businesses ever built. YouTube has enormous attention. Cloud is finally becoming a major profit pool. Gemini gives Alphabet a credible way to defend its distribution instead of waiting for somebody else to redefine the interface.
I am not betting that AI politely leaves Search alone.
I am betting Alphabet has enough distribution, compute, data and product surface to adapt without destroying the economics along the way.
So far, the income statement is helping that argument.
Q2 revenue reached $119.8B, up 24%. Google Services grew 15%. Search grew 17%. YouTube ads grew 13%. (Q2 results)
Cloud was the ridiculous one: $24.8B of revenue, up 82%.
Operating income grew 30%, and consolidated margin expanded two points to 34%.
Then the accounting gets weird. Alphabet reported $9.11 of diluted EPS, but Q2 included roughly $98B of other income, primarily unrealized gains on equity securities.
I am not capitalizing that.
The other number I cannot ignore is $44.9B of Q2 capex. Trailing free cash flow was still $53.3B, but Q2 itself was negative $5.9B after the infrastructure spend.
And unlike Microsoft, Alphabet actually raised equity to help fund the build: $49.6B of net proceeds from common and mandatory convertible preferred stock in Q2, alongside a new ATM program authorizing up to $40B of additional common-stock sales. (Q2 results)
Q2 2026
Primary sources: Q2 2026 earnings release — SEC ↗ · Q2 2026 10-Q — SEC ↗
The core model still uses roughly $11.40 of operating EPS with 8% / 15% / 19% growth and 20x / 27x / 31x terminal multiples after stripping out the giant Q2 equity gains. The more important change is capital allocation: $49.6B of equity raised, $20.3B of debt issued, a $40B ATM authorized and $44.9B of Q2 capex. Capital Allocation drops to 7.0/10.
My position
What I actually bought and sold.
| Date | Type | Account | Dollars | Shares | Price | Return now* |
|---|---|---|---|---|---|---|
| Jun 5, 2026 | Buy | Taxable | $1,500 | 4.132 | $363 | -6.0% |
| Jun 12, 2026 | Buy | Taxable | $1,157 | 3.197 | $362 | -5.8% |
| Jun 29, 2026 | Buy | Taxable | $1,500 | 4.391 | $342 | -0.2% |
| Sep 10, 2026 | Buy | Roth IRA | $5,000 | 15.298 | $327 | +4.4% |
| Sep 14, 2026 | Reinvest | Taxable | $2.58 | 0.008 | $323 | +5.8% |
*Return now uses the latest available quote for buys and reinvestments. Sales and fees show “—”.
Valuation & scenario math
I use roughly $11.40 of core operating EPS rather than the reported Q2 number polluted by the equity gains.
Bear is 8% EPS growth at 20x. Base is 15% at 27x. Bull is 19% at 31x.
The base lands around $619 per share in five years.
The base endpoint is roughly $619 per share. The living page calculates the return from today’s quote to that fixed endpoint.
Perfectly fine.
Not so good that I can ignore the capital intensity and dilution question.
My practical checkpoints stay around $400 / $350 / $300. They are not sacred P/E lines; they are where I rerun the expected-return work with the latest Search, Cloud and capex evidence.
Current dollar checkpoints from the core operating model
Normal zone · 2.5% below $350 normal
| Band | Buy price | Base return to Sep 2031 |
|---|---|---|
| Starter | $400 | +9.2% |
| Normal | $350 | +12.2% |
| Aggressive | $300 | +15.8% |
These are checkpoints, not holy scripture. Search economics, Cloud profitability, dilution and AI capex can all change the earnings anchor. If the business changes, the band changes.
I use a core operating EPS proxy and ignore the giant Q2 unrealized equity gains. The return case is basically: Search stays economically relevant, Cloud and AI keep growing, and the defense of the franchise does not require permanently awful capital intensity or dilution.
| Normalized EPS today | $11.40 |
| Annual EPS growth | 15% |
| EPS by Sep 25, 2031 | ~$23 |
| Terminal P/E | 27x |
| Implied base price | ~$619/share |
The base case is basically ~$23 of Sep 25, 2031 EPS at 27x, or about $619/share. Same math, just without making the reader decode equation soup.
| Case | What has to be true | Target range | Annualized return from today |
|---|---|---|---|
| Bear | 8% annual EPS growth · 20x terminal P/E. Search economics weaken through the AI transition, Cloud growth normalizes and infrastructure/dilution consume more of the per-share upside. | $312–$358 center ~$335 | -0.4% |
| Base | 15% annual EPS growth · 27x terminal P/E. Search remains durable, Cloud becomes a much larger profit pool and AI expands the earnings engine without permanently wrecking unit economics. | $576–$662 center ~$619 | +12.8% |
| Bull | 19% annual EPS growth · 31x terminal P/E. Search monetization holds, Cloud/AI scale rapidly and Alphabet's full-stack infrastructure advantage produces sustained high-teens per-share earnings growth. | $784–$902 center ~$843 | +20.1% |
Returns use the current quote and the time remaining to Sep 25, 2031. The scenario targets stay fixed until the underwriting changes.
Capital allocation
Excellent businesses. I really do not love issuing equity to fund the compute bill.
Search and Cloud are giving management real evidence that the AI investment is working, and the balance sheet still has enormous flexibility. The score drops because Alphabet chose a huge equity raise, added debt and authorized a large ATM while already owning one of the best cash engines in public markets.
Stage-relative, not some objective rating-agency grade. The number is there to force the judgment into the open. See the rubric →
What management is actually doing with the cash
The AI spending is producing real operating evidence, so management deserves credit. The financing choice is where I get much less comfortable. In Q2 Alphabet raised $49.6B through common/preferred equity, issued $20.3B of debt and authorized an ATM for up to $40B more common stock. This is one of the strongest cash-generating franchises on earth. So yeah, I am going to ask why existing shareholders need that much dilution.
What I’m doing with the next dollar
The position has room inside the 2%–5% target. The live framework above owns the current buy-zone call.
So unlike Meta, position size is not stopping me.
The hurdle is opportunity cost.
Alphabet has a very good operating setup and a reasonable expected return. It also just showed me that management is willing to issue equity while spending at extraordinary scale.
That makes the next dollar a much closer call than “Cloud grew 82%, smash buy.”
The denominator still matters. Even for Google.
What can break this
I am not worried about people waking up tomorrow and forgetting how to Google.
The real risk is that AI changes search behavior enough to weaken monetization while Alphabet simultaneously has to spend far more capital just to defend the franchise.
Cloud can grow like crazy and still disappoint shareholders if the infrastructure economics are mediocre. Search can remain huge and still become a worse business if answer formats reduce commercial intent or increase serving costs materially.
Then there is dilution.
A company with this kind of cash engine choosing to issue tens of billions of dollars of equity gets my attention basically immediately.
The equity issuance gets easier to forgive if Search keeps growing through the AI transition, Cloud converts demand into durable profit and the infrastructure build becomes self-funding enough that this looks temporary.
It gets much harder to forgive if Search monetization weakens, Cloud needs permanently worse capital intensity, or the ATM becomes a recurring way to fund growth and compensation.
Search and Cloud can both keep growing and I can still hate the financing choice. Those are not contradictory.
The next few quarters need to show me whether the equity raise was a weird bridge or just the new normal.
The evidence I’m watching
Search keeps growing through the AI transition, Cloud turns the current demand into durable high-margin profit, and the infrastructure build becomes self-funding enough that this equity issuance looks like a weird one-off rather than the new normal.
Search monetization structurally weakens, Cloud and AI require permanently worse capital intensity, or equity issuance and ATM usage become a recurring way to fund growth and compensation.