Alphabet Inc

The earnings record is steady, but at this price the research points to a demanding valuation.

Alphabet is a large business that turns most of its profit into cash and carries little debt. Revenue reached $402.8B and net income reached $132.2B in the year to 31 December 2025. The earnings record is steady across 13 years of filings, with no loss years. The valuation is the problem: at $340.59 per share, the base-case value is $189.80, and even the bull case of $301.66 sits below the share price, which is why the engine's verdict is demanding price.

Alphabet reported revenue of $402.8B and net income of $132.2B for the year to 31 December 2025. The filing text we could read does not say where that revenue comes from, so we cannot confirm the split between advertising, cloud and other lines from the excerpts. The numbers show a business that turns most of its profit into cash and carries little debt.

• Revenue growth of 18% a year over the period
• Operating margin of 32% in the latest year
• Cash conversion averaging 100% of reported profit
• Capital spending at 3.0× depreciation, which absorbs cash
• Owner earnings growth of -0.5% a year, well behind net income growth of 24%

Inside the circle? The earnings record is steady: there were no loss years and the operating margin varied by only 4.4% around its average, which fits a Buffett-style test of consistent earning power. Owner earnings have not grown with reported profit, and capital spending is heavy, so a careful owner would need to check how long the returns on capital can hold. The filing narrative is missing, so we cannot test technology change, regulation or customer behaviour directly.

We could not identify a moat from the filing text. The annual report excerpts contain no narrative sections, so we cannot see what the company says protects its revenue from rivals. The numbers show strong results: operating margin averaged 26% and return on invested capital averaged 35%, but these show outcomes, not their cause. A Buffett-style investor would want to know whether competitors could take share if prices rose, and the excerpts cannot answer that. Until the business section can be read, we treat durability as unknown.

We could not read a narrative section of the latest annual report, so we cannot test what management says about its plans or how candidly it reports to owners. The numbers give some clues. The share count has changed by -2.4% a year, which points to buybacks returning value to owners. Dividends are small, with an average payout of 1.5%, so most cash has stayed in the business or gone to repurchases. Capital spending runs at 3.0× depreciation, and owner earnings growth of -0.5% a year suggests that heavy spending has not yet lifted cash returns to owners.

• The share count change averaged -2.4% a year. A Buffett-style reader would read this as buybacks returning value, but the excerpts do not say whether repurchases were made below intrinsic value.
• Dividend payout averaged 1.5%, so the business keeps nearly all its earnings. The retained earnings test is unknown because the price history needed to score it is not in the excerpts.
• Owner earnings growth was -0.5% a year, while net income growth was 24%. Management would need to explain this gap, and we could not find that explanation in the excerpts.
• Cumulative retained earnings of $542.7B sit against book value of $415.3B. Without the narrative, we cannot tell whether each dollar kept has created at least a dollar of value for owners.

• FailsA business that doesn't eat capitalFails

  Capital spending has averaged 3.0× depreciation; estimated maintenance capex was $68.6B last year.

  Why this test
• FailsMargin of safetyFails

  At $340.59, the price is above the base-case value of $189.80 (the bear case is $110.75), so there is no margin of safety (-79%). The standard lens asks for 25%.

Buffett's tests of consistent earning power, high return on equity and little debt are passed here. Return on equity averaged 23%, and debt is small against owner earnings. Buffett's owner earnings principle is more mixed. The normalised test passes, but owner earnings have grown at -0.5% a year while net income grew at 24% a year, so less of each extra dollar of profit has reached owners as cash. Capital spending at 3.0× depreciation fails the low capital intensity test, and the one dollar retained test cannot be run because the price history is not in the evidence. Buffett's interest rate test also fails: the owner earnings yield is 1.9% against a ten-year Treasury yield of 5.1%. Buffett's margin of safety principle is the decisive one here, with a base-case margin of -79%. The durable competitive advantage test is unknown rather than passed, because the filing narrative could not be read.

• The narrative sections of the next annual report, including the business description and risk factors.

  Without them we cannot test the moat, the revenue mix or management candour.

• Owner earnings growth set against net income growth over the next few years.

  A persistent gap would mean heavy spending is not turning into cash for owners.

• Capital spending relative to depreciation.

  A ratio that stays near 3.0× would keep the low capital intensity test failed.

• The share count and buyback spending.

  A shrinking share count, currently a change of -2.4% a year, supports the capital allocation test. A rising count would weaken it.

• The ten-year Treasury yield set against the owner earnings yield.

  The gap shows how much the price depends on low interest rates.

Questions the filings couldn't answer

• What share of revenue comes from advertising, cloud and other lines, and how fast is each growing?
• What protects the revenue from rivals, and could competitors take share if prices rose?
• What was the share price history over the period, so the one dollar retained test can be run?