At about $320 per share as of this writing, Alphabet (GOOG +2.34%)(GOOGL +2.13%) stock trades at 16 times earnings, a multiple usually reserved for slow-growth businesses. Yet just last week, management raised the company’s 2026 capital expenditure guidance to a range of $195 billion to $205 billion.
This begs the question, is it time to get in on this stock? After all, its historical performance is staggering.
Ten years ago this week, Alphabet’s split-adjusted share price was about $38. A $10,000 investment then would have bought about 262 shares. Today, that stake would be worth about $84,000, a compound annual return of roughly 24% (not counting the small dividend the company began paying in 2024).
The decade rewarded shareholders because the business compounded. Can it keep compounding while spending $200 billion a year on data centers? Below, I’ll answer this — as well as explain one more thing: shares may not be quite as cheap as they look on the surface.
Image source: Getty Images.
The engine behind the 8-fold return
Alphabet’s second-quarter results, released last week, show the compounding is intact. Revenue rose 24% year over year (23% in constant currency) to $119.8 billion, the company’s 12th consecutive quarter of double-digit growth. Operating income increased 30%, and operating margin expanded 2 percentage points to 34%.
The fastest-growing piece is Google Cloud. The segment’s revenue accelerated to 82% year-over-year growth in the second quarter, reaching $24.8 billion, after growing 63% in the first quarter. That’s about a fifth of Alphabet’s revenue. And the segment’s operating income more than tripled year over year to $8.8 billion, with its operating margin expanding to 35.6% from 20.7% a year earlier.
The core franchise is holding up, too. Google Search & other revenue, the biggest line in the business, grew 17% year over year to $63.3 billion, while YouTube ads grew 13% to $11.1 billion.
This is not a company running out of ways to grow.
Today’s Change
(2.13%) $6.80
Current Price
$326.54
Key Data Points
Market Cap
Day’s Range
$324.48 – $330.42
52wk Range
$187.82 – $408.61
Volume
953.9K
Avg Vol
33.1M
Gross Margin
60.94%
Dividend Yield
0.27%
The multiple isn’t what it looks like
The 16 times earnings comes straight from the math — about $320 divided by trailing earnings per share of $19.93. It’s also misleading. Alphabet’s second-quarter net income of $112.1 billion, up 298% year over year, included a $99.0 billion gain on equity securities, mostly unrealized markups on stakes in SpaceX and other companies. That single item added $6.26 to the quarter’s $9.11 in earnings per share.
A trailing multiple about half that of the S&P 500 looks like a bargain on any screen. But it shouldn’t be taken at face value.
Strip the investment gains out and price the company on expected operating earnings, and the stock trades at about 24 times forward earnings. For a business growing 24%, that’s arguably a fair price. But it changes the comparison. Microsoft trades at about 21 times forward earnings, and Meta Platforms at about 18. On that basis, Alphabet is the priciest of the three big platforms spending heavily on artificial intelligence (AI) infrastructure, not the cheapest stock in big tech, as the screen suggests.
The spending is not hypothetical, either. Capital expenditures were $44.9 billion in the second quarter alone (more than double the year-ago figure), up from $35.7 billion in the first quarter. Free cash flow swung to negative $5.9 billion for the quarter.
Funding all of that has flipped the company’s capital habits. Alphabet sold $49.6 billion of new stock in June, issued $20.3 billion of senior notes during the quarter, and has repurchased no shares this year, after spending $13.2 billion on buybacks in the second quarter of 2025 alone. Long-term debt has more than doubled since December, to about $98 billion.
Indeed, a company that spent years returning capital to shareholders is, for now, raising it instead.
So, is the stock still worth owning after an 8-fold decade? I think so. Revenue growth of 24% at a $3.9 trillion scale, an accelerating cloud segment, and expanding margins arguably earn a premium. About 24 times forward earnings is a reasonable price for that combination, and the operating engine is the reason to own it.
But anyone buying because the multiple says 16 should know what they’re actually paying. The real price is about 24 times forward earnings, with free cash flow negative in the second quarter and no buybacks yet this year while the company funds its AI build-out.
If cloud growth cools while the spending keeps stepping up, I’d revisit. For now, I believe this compounding machine is still intact. Sure, returns will likely be volatile — and we shouldn’t expect the same market-crushing returns we’ve seen historically. But Alphabet’s prospects arguably look solid.
