Alphabet GOOGL released its fiscal fourth-quarter earnings report on Feb. 4. Here’s Morningstar’s take on Alphabet’s earnings and stock.

Key Morningstar metrics for Alphabet

  • Fair Value Estimate: $340.00
  • Morningstar Rating: ★★★
  • Morningstar Economic Moat Rating: Wide
  • Morningstar Uncertainty Rating: Medium

What we thought of Alphabet’s fiscal Q4 earnings

Alphabet reported strong fourth-quarter earnings, with sales up 18% to $113 billion and adjusted operating margins down 50 basis points to 31.6%. Google Cloud continues to be the star of the show, accelerating both sequentially and year over year to 48% growth.

Why it matters: Long gone are the days when the market had written off Alphabet as an artificial intelligence laggard. The massive surge in Alphabet shares has closely mirrored a turning tide, with investors now viewing the firm as an AI winner, with AI driving sales across the firm’s many segments.

  • The most obvious beneficiary of AI within Alphabet remains its cloud business, which now constitutes 16% of the firm’s total top line. The launch of Gemini 3, Alphabet’s latest large language model, continued to expand the firm’s enterprise and consumer market share.
  • We are impressed at how Alphabet continues to integrate AI within Google Search. By adding features such as AI Overviews and AI Mode, the firm has not only mitigated a real competitive threat from GenAI chatbots but also increased the number of queries and the ad price per query.

The bottom line: We maintain our $340 fair value estimate for wide-moat Alphabet and continue to view the firm as a clear leader in AI. Shares traded slightly down after hours, and we view them as fairly valued.

  • We continue to applaud Alphabet’s full-stack AI strategy, which enables the firm to be the master of its own destiny. Unlike peers that rely on external AI labs and AI chips, Alphabet’s investments in Google DeepMind and TPUs appear increasingly prescient over time.

Big picture: While results remain upbeat, it is important to step back and remain cognizant of the costs associated with AI. Management guided to approximately $180 billion in capital expenditures in 2026, a 97% year-over-year increase, and 38% of our sales forecast for the year.

Coming up: We expect a broader rollout of ads within AI Search in 2026, which should add incremental Google Search sales.

Fair Value Estimate for Alphabet

With its 3-star rating, we believe Alphabet’s stock is fairly valued compared with our long-term fair value estimate of $340 per share, which implies a 2026 adjusted price/earnings multiple of 31 times and an enterprise value/adjusted EBITDA multiple of 22 times. We forecast Alphabet’s top line growing at a 15% compound annual growth rate over the next five years.

Economic Moat rating

We believe Alphabet merits a wide economic moat rating, owing to the intangible assets, network effect, cost advantage, and customer switching costs that permeate a variety of its businesses.

While Alphabet’s own reporting operating segments are split into Google services, Google Cloud, and other bets, we believe that for the purposes of analyzing the firm’s economic moat and durable competitive advantage, a different split is more appropriate. In our moat analysis, we look at Google Search, YouTube, Google Cloud, Android and Google Play, devices, and other bets (which includes Google’s aspirational projects such as self-driving vehicles and internet access).

Financial strength

We view Alphabet’s financial position as virtually unassailable. The firm closed 2025 with cash and cash equivalents of $127 billion, more than offsetting its debt balance of $46 billion.

The firm’s advertising business is a cash-generating machine, churning out tens of billions of dollars in free cash flow annually. Alongside advertising, Alphabet is making progress on diversifying its cash generation, with Google Cloud and YouTube subscription sales as additional free cash flow drivers.

Risk and Uncertainty

We assign Alphabet an Uncertainty Rating of Medium. This reflects our belief that despite the near-term uncertainty around antitrust regulation and potential competition in the AI-infused search market, Alphabet is well positioned to expand its overall business while maintaining a rock-solid balance sheet.

We believe Google’s intangible assets and network effects will likely safeguard its dominance in the search space. Further, the firm’s continued investments in AI, which Alphabet can leverage across nearly every business it operates, should be value-accretive. We do think Google Search’s status as the runaway leader in search could come under pressure, primarily due to the antitrust scrutiny. While we don’t see the firm’s market leadership slipping due to antitrust concerns, this issue adds uncertainty to an otherwise stable business.

Alongside antitrust, the other key area of uncertainty for Alphabet as a whole is AI. The firm has invested, and continues to invest, a considerable amount of capital in new AI technologies such as generative AI. While we view these investments as value-accretive, especially considering the myriad ways Alphabet can monetize its technological know-how in AI, we view them as adding more uncertainty to the range of possible outcomes for Alphabet’s top line and profitability in the future.

GOOGL bulls say

  • Alphabet’s core advertising business is deeply entrenched in advertising budgets, allowing the firm to benefit from a secular increase in digital advertising spending
  • The firm’s advertising business generates substantial cash flows that it can reinvest in growth areas such as GCP, AI-infused search, and aspirational projects like Waymo.
  • Alphabet has a huge opportunity in the lucrative public cloud space as a key cloud vendor to enterprises looking to digitize their workloads.

GOOGL bears say

  • While Alphabet is seeking to diversify its business away from search, text-based advertising remains the largest contributor to the firm’s top line, creating a concentration risk.
  • Alphabet’s continued investments in new, often unproven technologies have been a drag on cash flows.
  • Regulators around the world are keying in on Alphabet’s search dominance and could upend the search market through the imposition of deep, structural changes in the space.

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