Equity Research · Current Holding
Alphabet
GOOG · NASDAQ · Internet · Cloud · AI Infrastructure
Rating
Overweight
Price Target
$450
Quan Pham, Senior Analyst · M’Squared Capital Research · As of Q2 2026
The market is short-selling the most durable cash machine in technology on a misread of the AI transition.
Summary
Alphabet trades as if generative AI ends Search. The query data says otherwise: search volumes are still growing, Gemini has closed the model-quality gap, and Cloud has inflected to GAAP profitability with a backlog compounding north of 30%. We are long the widest moat in technology at a discount to its mega-cap peers, with Waymo and the TPU program embedded near zero.
Business Overview
Alphabet operates Google Search, YouTube, Google Cloud, Android, and the Other Bets portfolio (including Waymo). Advertising is roughly three-quarters of revenue, but Cloud and subscriptions are the growth and margin story, and custom TPU silicon is an underappreciated structural asset.
Investment Thesis
- 01
Search is not disintermediated
AI Overviews monetize at rough parity and query growth remains intact. The terminal-decline narrative is a positioning artifact, not a fundamental one — the fear is in the multiple, not the numbers.
- 02
The Cloud inflection is real
GCP has crossed into durable operating-margin expansion as remaining performance obligations compound. The market still models Cloud as a cost center; we model it as a second earnings engine.
- 03
Optionality for free
Waymo, DeepMind, and TPU vertical integration are near-zero in the price. TPUs alone materially de-risk the industry's NVIDIA dependence and give Alphabet a cost edge in training and inference.
Valuation & Price Target
Our $450 target values Alphabet on ~24x 2027E EPS with Cloud carried on a standalone sum-of-the-parts — still a discount to mega-cap peers despite superior free-cash conversion. Roughly $100/share of net cash and a persistent buyback underpin the downside.
Catalysts
- Cloud operating-margin prints beating the sell-side
- Gemini consumer traction and subscription attach
- Waymo commercial expansion into new metros
- Antitrust remedy clarity removing the legal overhang
Key Risks
- An adverse antitrust remedy on ad-tech or default-search agreements
- AI capex intensity compressing near-term free cash flow
- Query-share erosion to AI-native search entrants
Bottom Line
We are paid to be patient owners of a franchise the market is temporarily mispricing. Overweight, $450 target.
This note is the opinion of M’Squared Capital and is provided for informational purposes only. It is not investment advice, nor an offer or solicitation to buy or sell any security. Price targets and entry and exit levels reflect the firm’s proprietary views and realized transactions; they are not forecasts of future results. The firm may hold, add to, reduce, or close any position at any time without notice. Past performance is not indicative of future results.