Six-year segment-driver model with a vintage depreciation schedule. Base year TTM to 2026-06-30, all statement inputs from SEC XBRL.
SHORTConviction 2/318-month horizonEdge: analytical
| Fiscal year | Our revenue | Street avg | Street low–high | Δ | Percentile | Analysts | Our EBIT mgn | Street EBIT mgn |
|---|---|---|---|---|---|---|---|---|
| 2026 | $492bn | $495bn | 489–501 | -0.7% | 27th | 35 | 30.0% | 32.5% |
| 2027 | $569bn | $606bn | 574–654 | -6.1% outside | below low | 39 | 28.4% | 32.5% |
| 2028 | $645bn | $722bn | 540–799 | -10.7% | 40th | 38 | 27.3% | 32.5% |
| 2029 | $721bn | $816bn | 715–880 | -11.6% | 4th | 29 | 26.5% | 32.5% |
| 2030 | $798bn | $936bn | 821–1,010 | -14.8% outside | below low | 35 | 26.3% | 32.5% |
We forecast EBITDA margin — a cash margin driven by mix, pricing and opex — and derive EBIT by subtracting depreciation built from the capex programme, vintage by vintage. Forecasting EBIT margin directly, which both the published consensus feed and most sell-side models do, hides the depreciation assumption inside a single number.
| Year | Revenue | Growth | EBITDA mgn | Capex | Capex %rev | D&A | D&A %rev | EBIT mgn | FCFF |
|---|---|---|---|---|---|---|---|---|---|
| 2026E | $492bn | 22.1% | 38.5% | $170bn | 34.6% | $42bn | 8.5% | 30.0% | $-10bn |
| 2027E | $569bn | 15.6% | 39.2% | $177bn | 31.1% | $61bn | 10.8% | 28.4% | $14bn |
| 2028E | $645bn | 13.4% | 39.8% | $173bn | 26.9% | $81bn | 12.5% | 27.3% | $48bn |
| 2029E | $721bn | 11.9% | 40.2% | $163bn | 22.6% | $99bn | 13.7% | 26.5% | $89bn |
| 2030E | $798bn | 10.7% | 40.5% | $153bn | 19.1% | $113bn | 14.2% | 26.3% | $129bn |
| 2031E | $873bn | 9.4% | 40.7% | $148bn | 17.0% | $122bn | 14.0% | 26.7% | $161bn |
Forecast year 2026 is part history. $80.6bn of capex through Q2 is a filed fact, not an estimate. The remaining 2 quarters are held at the last observed quarterly rate of $44.9bn (2026-06-30), giving $170.4bn for the full year. Freezing the exit rate is deliberately conservative: quarterly capex has risen in each of the last seven quarters, so this assumes the ramp stops today. Anchoring on a trailing-twelve-month ratio instead — the conventional choice — would put the full year below the half-year already reported.
Note this is a claim about reported earnings, not primarily about discounted value: in an FCFF model depreciation is added back, so a higher charge is close to value-neutral and shows up in the bridge below as a small tax effect. The cash that leaves is capex, and that is anchored on filings above. The depreciation gap matters because it is what the multiple is applied to, and because it is observable every ninety days.
Contributions are exact Shapley values over all 27 = 128 driver coalitions, so they sum to the total without residual (residual $+0.0000). One-at-a-time sensitivity would not, because DCF driver interactions are large.
| Step | $/share | |
|---|---|---|
| Street-calibrated value | $167.07 | |
| ebitda margin | +31.65 | |
| revenue | -27.57 | |
| da pct revenue | +19.61 | |
| Our base case | $190.76 | |
| Market price | $357.94 |
The gap from our base case to the market price is not decomposed into drivers, because it is not a forecast disagreement — it is the discount rate and terminal assumptions the market is applying. That is stated below rather than disguised as precision.
At $357.94, holding everything else at our base case, the market is paying for either…
| Case | Value/share | vs spot | Probability | WACC | Terminal g | TV % of EV | Anchor |
|---|---|---|---|---|---|---|---|
| Bear | $109.76 | -69.3% | 25% | 9.50% | 2.5% | 87% | consensus dispersion |
| Base | $190.76 | -46.7% | 45% | 8.75% | 3.0% | 86% | judgment |
| Bull | $435.58 | +21.7% | 30% | 7.25% | 3.8% | 90% | consensus dispersion |
| Expected value | $243.96 | -31.8% | 100% | ||||
| Street-calibrated (their revenue, EBIT and D&A; our capex, our engine) | $167.07 | -53.3% | |||||
| Street published price target (median 425, range 350–475) | $427.55 | +19.4% | |||||
The depreciation catch-up arrives with no offsetting EBITDA margin expansion and Search ad coverage erodes faster than modelled. Held below the base case because Alphabet has beaten EPS in all eight reported quarters and Cloud is currently supply-constrained rather than demand-constrained.
Modal because the arithmetic is close to mechanical: $985bn of cumulative capex over six years cannot be carried at 4.6% of revenue in D&A under any useful life Alphabet currently discloses. The uncertainty is timing and offsetting margin, not direction.
Carries real weight because it embeds the market's own implied ~6.1% discount rate and the possibility that AI capex proves front-loaded rather than permanent. Thirty-nine analysts and a $427 median target sit closer to this case than to ours.
Computed through a constraint cascade, not chosen. Basis: illustrative $1bn book.
| Term | Value | Note |
|---|---|---|
| Payoff ratio b | 1.47 | reward ÷ risk |
| p(win) | 70% | probability mass favouring the position |
| Kelly f | 49.6% | full Kelly fraction |
| Quarter-Kelly | 12.39% | 0.25 × Kelly |
| Liquidity cap | 2240.00% | 20% of ADV over 5 days |
| Risk-budget cap | 6.92% | 1.5% of NAV at risk to the adverse case |
| Concentration cap | 5.00% | single-name hard limit |
| Position size | 5.00% of NAV | binding constraint: concentration cap |
| # | If this happens | Observable | Threshold | By | Action |
|---|---|---|---|---|---|
| k1 | Alphabet extends disclosed server useful life beyond six years Extending life defers the entire catch-up and breaks the thesis outright. | Property & equipment useful-life disclosure, FY2026 Form 10-K | > 6 years | 2027-02-28 | exit full |
| k2 | FY2027 capex guidance below $110bn A sharp step down means the build-out was front-loaded and FCF inflects early. | Capex guidance, Q4 FY2026 earnings call | < $110bn | 2027-02-05 | cut half |
| k3 | D&A passes 9% of revenue while EBIT margin holds above 30% Would mean EBITDA margin is expanding fast enough to absorb the charge. | Depreciation / revenue and operating margin, quarterly | both true in one quarter | 2027-07-31 | cut half |
| k4 | Cloud revenue growth below 25% for two consecutive quarters Our supply-constrained framing would be wrong: demand, not capacity, binds. | Google Cloud segment revenue growth, 10-Q | < 25% YoY x2 | 2027-04-30 | review |
| Date | Event | What we learn | Tests |
|---|---|---|---|
| 2026-10-28 | Q3 FY2026 results | D&A/revenue trajectory, capex guide, Cloud growth and backlog | k3, k4 |
| 2027-02-05 (tentative) | Q4 FY2026 results and Form 10-K | FY2027 capex guidance and the useful-life disclosure | k1, k2 |
| 2027-04-30 (tentative) | Q1 FY2027 results | First clean read on whether the depreciation step-up is arriving | k3 |
The strongest case against our own short: Alphabet has beaten EPS in eight consecutive quarters, Cloud is accelerating rather than decelerating, and the AI capex may be buying an option on a materially larger business rather than a commodity compute fleet. Our answer is that none of that is inconsistent with the depreciation arithmetic -- it changes the numerator, not the charge.
Our valuation sits 55% below the Street's median target and below the lowest of 39 published targets. Either we are missing something 39 analysts can see, or the consensus feed carries a margin assumption nobody has re-derived. We think the latter, but the base rate on that judgement is not favourable and the position is sized accordingly.
Eighteen months out the position is down 30%. What happened: Alphabet extended server useful lives to eight years in the FY2026 10-K, cutting the annual depreciation charge by roughly a third at a stroke and pushing the catch-up beyond our horizon. At the same time Gemini monetisation lifted Search ad coverage instead of compressing it, and the complex re-rated on a lower discount rate as rates fell. We were right about the arithmetic and wrong about the accounting policy -- the one input management controls directly.
| TTM to 2026-06-30 | $bn | Comment |
|---|---|---|
| Revenue | 445.9 | |
| Operating income (EBIT) | 147.6 | 33.1% margin |
| Non-operating income | 151.6 | 50.7% of pretax income |
| of which equity-securities gains | 149.0 | non-cash marks on investment stakes |
| Reported net income | 244.2 | includes the marks above |
| NOPAT (EBIT after tax) | 120.5 | at 18.4% effective rate |
Every revenue line is the product of named quantities, not a growth rate. Each driver can be disagreed with individually and checked against disclosure.
| Segment / driver | 2026E | 2027E | 2028E | 2029E | 2030E | 2031E |
|---|---|---|---|---|---|---|
| Google Search & other ($bn) | 268 | 300 | 330 | 358 | 387 | 417 |
| queries | +6.5% | +5.5% | +5.0% | +4.5% | +4.0% | +3.5% |
| ad coverage | -1.0% | -1.5% | -1.5% | -1.0% | -0.5% | +0.0% |
| price per click | +13.0% | +8.0% | +6.2% | +5.0% | +4.5% | +4.0% |
| YouTube ads ($bn) | 46 | 52 | 57 | 61 | 65 | 68 |
| watch hours | +5.0% | +4.5% | +4.0% | +3.5% | +3.0% | +3.0% |
| ad load | +2.0% | +1.5% | +1.0% | +0.5% | +0.0% | +0.0% |
| cpm | +7.5% | +5.0% | +4.0% | +3.5% | +3.0% | +2.5% |
| Google Network ($bn) | 29 | 28 | 27 | 25 | 24 | 23 |
| runoff | -3.0% | -4.0% | -4.0% | -5.0% | -5.0% | -5.0% |
| Subscriptions, platforms & devices ($bn) | 56 | 65 | 73 | 82 | 90 | 99 |
| subscribers | +14.0% | +12.0% | +10.0% | +9.0% | +8.0% | +7.0% |
| arpu | +3.0% | +3.0% | +2.5% | +2.5% | +2.0% | +2.0% |
| Google Cloud ($bn) | 91 | 122 | 156 | 192 | 228 | 263 |
| capacity | +55.0% | +34.0% | +28.0% | +23.0% | +19.0% | +15.0% |
| Other Bets ($bn) | 2 | 2 | 2 | 3 | 3 | 4 |
| growth | +10.0% | +15.0% | +20.0% | +20.0% | +20.0% | +20.0% |
| Total revenue ($bn) | 492 | 569 | 645 | 721 | 798 | 873 |
| Item | $bn | Note |
|---|---|---|
| Enterprise value (base case) | 2,118 | |
| + Cash & marketable securities | 242.5 | |
| + Equity investments (stakes) | 124.3 | 27.9% of revenue — $10.09/share. Omitted from the published report's bridge. |
| − Debt | 100.2 | |
| − Operating leases | 18.0 | |
| − Preferred stock | 18.0 | 6.25% mandatory convertible issued June 2026, carrying value. Liquidation preference is $19.0bn. Deducted here rather than converted into the share count; the diluted count already carries ~8m if-converted shares, so the two overlap by well under 0.1%. |
| Equity value | 2,348 | ÷ 12,309m diluted shares |
| Value per share | $190.76 |
companyconcept API, CIK 0001652044. Quarterly series are reconstructed from filed facts, with Q4 derived as fiscal year minus the nine-month cumulative and cash-flow items unwound from year-to-date cumulatives.analyst/financial-estimates and analyst/price-target-consensus.statements/revenue-product-segmentation. No SEC fallback exists — companyfacts flattens dimensioned facts — so the only control is reconciling the segment sum to consolidated revenue.get_earnings_results.