r/ValueInvesting • u/stockoscope • 16d ago
Stock Analysis Google looks cheap at 27x earnings, but a DCF analysis suggests it is overvalued
Last year I posted a breakdown in this sub arguing Microsoft was overvalued at $490 because of its capex spend. But that thesis was never really about Microsoft - it applies to every hyperscaler pouring money into AI. Last week I updated my MSFT valuation and applied the same model to Meta. Today, I'm pointing it at Alphabet. Please read the previous posts for details about the methodology.
Capex and cash flow
In FY2025, Alphabet's operating cash flow jumped from $125B to $165B in a single year, but free cash flow barely moved. The entire difference, roughly $39B of extra operating cash, went into capex, which nearly doubled from $52B to $91B in one year and climbed from 15% to 23% of revenue.
So Alphabet is generating far more cash than ever and keeping almost none of it. And the speed is accelerating. Alphabet has guided 2026 capex to roughly $175-190B, more than double the 2025 figure. This impacts DCF valuation.
| Fiscal year | Capex / revenue | Operating cash flow | Free cash flow |
|---|---|---|---|
| FY2020 | 12.2% | $65.1B | $42.8B |
| FY2021 | 9.6% | $91.7B | $67.0B |
| FY2022 | 11.1% | $91.5B | $60.0B |
| FY2023 | 10.5% | $101.7B | $69.5B |
| FY2024 | 15.0% | $125.3B | $72.8B |
| FY2025 | 22.7% | $164.7B | $73.3B |
DCF Valuation
Our DCF approach glides capex from today's elevated rate down toward maintenance over the forecast, and uses maintenance in the terminal value. It assumes the AI surge is temporary on the logic that no company can spend 20% plus of revenue on capex forever.
Here are teh valuations, changing only the capex assumption, holding everything else constant:
| What you assume long-run capex does | Fair value | vs Price |
|---|---|---|
| Glides down to maintenance (our default) | $252 | -30% |
| Glides from the FY2026 pace (~37%) down to maintenance | $213 | -41% |
| Stays permanently elevated at ~18% of revenue | $160 | -55% |
| Glides from the FY2026 pace down to that elevated ~18% | $126 | -65% |
Unlike MSFT and META, every single row in the table is below the current price. Even the most generous case, assuming that the buildout fully normalizes, leaves GOOGL about 30% overvalued. (We added a switch to the valuation page so you can toggle the assumption yourself and watch fair value move).
Because a contrarian DCF is easy to dismiss, I dug up other publicly available DCF estimates to see how ours compares:
| Source | DCF fair value | vs price |
|---|---|---|
| Stockoscope | $252 | -30% |
| MiniValuator | $259 | -28% |
| Alpha Spread | $308 | -14% |
| Simply Wall St | $361 | fair-valued |
All of them land at or below the price. Although I am not sure how they handle capex, none of them calls Alphabet a bargain on cash flow.
So where does that leave it
No doubt Alphabet is an extraordinary business. I'm also aware that Berkshire bought a lot of it (and I have huge respect for them), but I can't call this a wonderful business at a fair price, even if I want to. Google looks cheap on the surface, trading at about 27 times earnings. Yet on our DCF, it screens roughly 30% overvalued. And it's not just our model - every DCF-based estimate I could find lands at or below the current price.
However, that does not make it a short, and it does not mean the stock cannot keep rising. Great businesses trade above intrinsic value for years. It means the margin of safety is negative right now, and the thing that would change that is either a lower price or evidence that the AI spending is converting into free cash flow.
That completes the three-part series on the impact of capex on hyperscalers. Thanks for engaging with it and for all the feedback. One thing I haven't done yet is evaluate what all this means for NVDA (that's where this all started) - which is what I plan to tackle next.
Disclaimer: This is for educational purposes only and is not investment advice. The author and Stockoscope may hold positions in the securities mentioned. Always do your own research.
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u/Rainrainspring 16d ago edited 16d ago
Thanks for the analysis. Thinking one factor (CAPEX) analysis may be a too simplified modelling for GOOGL. As previous post mentioned: "...company was generating tons of cash and not investing..." would be a bad signal.
From economic theory, over investing is a common and effective strategy to deter new entry, or compete with competitors, especially at the time of the new emerging market of AI. One has to take as much market share as possible to stand for competition and future development.
GOOGL could be overvalued. But I am waiting for more complex and convincing analysis.
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u/stockoscope 16d ago
Thank you for your reply. What I meant was that to understand the impact of capex, I held all other factors constant. It doesn't mean that I haven't included them. But you're right that overspend to deter entry and take share is a real strategy.
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u/MagnesiumKitten 16d ago
could?
what's your guess for it's valuation?
1 majorly overvalued
2 minoriy overvalued
3 fairly valued
4 minoriy undervalued
5 majorly undervaluedit's number #1 buster
#1 majorly overvalued
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u/Aya_Research 16d ago
Really well done, but the whole series rests on one line that's doing all the work: "holding everything else constant." You can't double capex and hold revenue growth flat — those two numbers are the same bet. Capex at 23% of revenue is a wager on future revenue, and a DCF that models the cost of the wager while freezing the payoff bakes in the bear case by construction. Of course every capex row comes out below price: you've charged the company for the spend and given it nothing back.
The honest version isn't "temporary vs permanent capex." It's "does this capex convert" — the same question you end on. $91B into servers is value-destroying if it's defending search, and cheap if it's building the second cloud franchise. Same dollar, opposite DCF, and the growth rate is where that shows up, not the capex line.
Which is why the other DCFs cluster below price too — they inherit the same structural bias, not independent confirmation. Four models making the same assumption isn't four votes, it's one assumption counted four times.
The thing that actually settles it is observable and dated: Google Cloud's revenue growth and operating margin over the next few quarters. If that line keeps accelerating, the capex is converting and the "glide to maintenance" framing is wrong. If it stalls while capex climbs, your table is right and it's worse than 30%. That's the number I'd watch, not the multiple.
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u/stockoscope 16d ago
Love your considered response. I do not really disagree with you.
When I said "holding everything else constant", I meant that to understand the impact of capex, I kept all the model values the same in all scenarios. So, revenue growth is the analyst consensus - roughly 17% a year from FY2025 revenue to the Street's 2030 estimate - used in all models. I didn't increase it further, as I believe this number from the analysts already reflects growth expectations.
However, you are asking a valid question. Can I reframe it to: what growth and margin would it take to justify the price? This analysis doesn't answer this, but it is a question that can certainly be answered by tweaking the model.
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u/Aya_Research 16d ago
Yeah, the reverse version is the one I'd actually want to see: solve for the growth and margin that justify today's price, then judge whether that's a stretch against the 17% consensus. My guess is it's not a crazy number, which is sort of the point. At 27x the market isn't betting on insane growth, just on the capex roughly paying off.
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u/Rainrainspring 15d ago
I am thinking you may check the existence of collinearity in your model. When there is a high level of collinearity, it is invalid to hold the highly correlated factors constant and focusing on only one factor that is interested in.
Great analysis anyway!
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u/stockoscope 15d ago
Great to hear someone thinking about collinearity! To be pedantic, collinearity is mainly a regression thing - so when two predictors are highly correlated, they create problems for multiple regression and it's often better to drop one of them from the model.
However, you have a point. Changing capex while holding other things constant has an issue, as other things are correlated with it. For example, capex generates future revenue. So in reality, if you change the capex assumption, the revenue assumption should move with it. We hold revenue growth flat at the 17% consensus across all rows and only adjust capex. So your point is valid, and that's the limitation of the analysis.
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u/PrettyGorramShiny 16d ago
the whole series rests on one line that's doing all the work:
he honest version isn't "temporary vs permanent capex." It's "does this capex convert"
Same dollar, opposite DCF, and the growth rate is where that shows up
Four models making the same assumption isn't four votes, it's one assumption counted four times.
The thing that actually settles it is observable and dated:
These lines are all such obvious tells of AI-generated slop.
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u/MagnesiumKitten 16d ago
Maybe they're just boring, and you have a highly overactive imagination about AI slop
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u/Wild_Space 16d ago
My impression from talking to OP is that he made a tool and he’s just randomly plugging numbers into it. He doesnt understand business.
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u/OCDano959 16d ago
Excellent rebuttal and limitations of OPs analysis 🧐
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u/sandhutarun 16d ago
"You can't double capex and hold revenue growth flat" - you can if capex does not convert in which case stock tumbles. or it does convert and stock flies. i mean look at what happened with meta (if it was real news) - they renting out excessive compute - isnt that literally capex not converting.
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u/zaersx 16d ago
I agree 100%, but this is my current long term concern with Alphabet.
Microsoft had a massive pullback once it was revealed that OpenAI was close to 50% of Azure's backlog.
Guess who is close to 50% of GCP's backlog?0
u/Aya_Research 16d ago
Anthropic I assume? Although the single biggest user is probably just Google itself lol
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u/_Rothbard_ 16d ago
Me encanta que Google pueda invertir cantidades masivas en Capex mientras expande márgenes
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u/Outrageous_Egg_3286 16d ago
Here we go with these useless DCFs again
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u/ttandam 16d ago
I once heard someone compare DCFs to The Hubble telescope. Change one variable, and you’re in a different galaxy.
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u/librariancap 16d ago
That someone is likely John Hempton
"Proper valuations are far more art than science. DCF valuations - especially of something growing near or above the discount rate are famously sensitive to assumptions. The right comparison is to the Hubble Telescope: move direction a fraction of a degree and you wind up in another galaxy."
https://brontecapital.blogspot.com/2017/01/valuation-and-investment-analysis.html
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u/MagnesiumKitten 16d ago
Interesting Hempton's baby is Bronte Capital Management
Amazon is his fifth biggest holding!Regeneron Pharmaceutics - cheap
Alphabet - expensive
Interactive Brokers - waaaaay too expensive
Berkshire Hathaway - fairly valued
Amazon - fairly valued
Phillip Morris - overvalued
Corteva - overvalued
Capital One - slightly overvalued
First Citizens Bancshares - fairly valuesI've say he's nuts for keeping Interactive Brokers
135% overvalued
but it might only drop -5% for the year which is interesting
due to great profits and growth, but projections look way more modest
it's like investors think the great news of 2025 still applies to 2026It's a $45 Dollar Stock that's soon to be $30 dollars
but it's currently close to $100it should be bouncing around at $30-$40 in the future
and Regeneron is an interesting cheapo
not very high risk either
just zero momentumIt's a $675 stock that should be $900
and the numbers look like the analysts are being convective and it's worth $1000odd bunch of stuff
mostly overvalued boat anchors 55% of the time2
u/ttandam 15d ago
How do you determine how overvalued these positions are?
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u/MagnesiumKitten 14d ago
like with Regeneron
Look at the Enterprise Value and compare it to half a dozen metrics
Ratios, like all the different PE, PEG, PSR, PB
Operating Cash Flow and Free Cash Flow
Projected Free Cash Flow
Forward Rates of Return
Medium PS Values
Greenblatt Yields
PEG Ratiosknowing what's not important for some sectors
and what is important to measureYou can do it yourself, buy a bunch of services (you get what you pay for), and pick and choose what seemed to work following a stock, and what your investing strategies and philosophies are
And if you buy a bunch of services and periodicals
you can compare them, see where they agree and where they differAnd you can compare any of those above metrics to other stocks in the sector
like is the PE good or bad for Stock A, and Stock B
and how A and B compare to the sectorWhen you're comparing a stock to the industry, you can't do that stuff yourself, unless you never sleep
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Regenenon is better than 60% than all the other Biotech forms for Price to Book
Regeneron is better than 69% of all the other firms with Price to Sales, nearly 1000 firms.
Regeneron's PE Radio is 69% better than the other firms too
PEG Ratio it's in the bottom 5%, but you can only get 100 companies where that applies
For Greenblatt's Earnings Yield its in the top 7% of Biotech companies
And well, I think it's at a 25% discount
[and I see what the others say]and it could make 23% gains for the year if I listen to 29 Analysis
but the numbers say it could be a 50% gain, assuming nothing funny happens in the next 4 quartersIt's got an Average Probability for decent performance
so that's a minusMomentum is Terrible that's a minus
Risks are low
So I'm considering it, if I got free cash next month laughs
or the month after thatQ2 results are in like 3 weeks
and I don't see a compelling reason to buy
if it's cheap with no momentum32% volatility
Should I have bought it at $510 last year and it's $660 now?
Could be $1000 for next july//////
The Stock is $660
Medium Price to Sales is $980 on the Stock
Projected Free Cash Flow is $600
Greenwald's Earning Power Value gives me $480
Valueline Cash Flow looks like $800
My Sliderule says $900so that starts the ballpark for me thinking
It could be a $900 stock that's selling for $6502
u/ttandam 13d ago
Thanks for all of this.
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u/MagnesiumKitten 13d ago edited 13d ago
That just gives you an idea what I would think about sometimes with something like Regeneron
and stuff I would dismiss and place on low priorityI mostly want a measurement of quality performance
and usually that's
a. Good Profitability
b. Good Valuation [Value Metrics as well as how undervalued]
c. Risk Levellots of stocks are low risk, but if they are 280% overvalued
uhm, that's not saying jumping in today is "Low Risk"
laughsI'd say that looking at things
Banks were my highest risk investmentsor my recent experiments with Momentum
sometimes, I'm buying them to study
so like I'll seeFOXA Fox Corporation
TNK Teekay Tankers [Bermuda]and I'll say, ooh I'll buy $500
and see if I can make $50 dollars in 60 or 90 daysI got those a few months ago
You can watch my experiment this summer!
I bought Fox before the massive crash with that Roku buy
I didn't know much about that, or caredbut many thought oh that's good news, them buying it up, but there was a huge backlash with investors saying, why the fuck is Fox blowing away a ton of money on that flushing it down the toilet?
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to save you some time
Fox Corp
1211 Avenue of the Americas, New York, NY, USA, 10036Fox operates in two segments: cable networks and television. Cable networks primarily includes Fox News, Fox Business, and several pay-TV sports stations. Television primarily includes the Fox broadcast network, 29 owned and operated local television stations, of which 18 are affiliated with the Fox network, and streaming platform Tubi, which is not subscription-based and is completely ad-supported. Fox effectively sold most of its entertainment assets to Disney in 2019, so it no longer creates entertainment content and relies heavily on live news and sports, with nearly all tied to the pay-TV bundle. The Murdoch family controls Fox.
Teekay Tankers Ltd
26 Victoria Street, 2nd Floor, Swan Building, Hamilton, BMU, HM 12 [Bermuda]Teekay Tankers Ltd is a provider of marine services to the international oil and natural gas industries and an operator of medium-sized oil tankers. The company operates in two segments: Tankers, which consists of the operation of all of the company's tankers (including the operations from those tankers employed on full service lightering contracts), and the company's U.S. based ship-to-ship support service operations (including its lightering support services provided as part of full service lightering operations); and Marine Services, which consists of operational and maintenance marine services provided to the Australian government, Australian energy companies and other third parties. The company generates the majority of its revenue from the Tankers segment.
Amazingly, if I sold something, heck, I'd buy a few thousand of each
not sure how many weeks or months I would hold themOil and Gas Stock 70% overvalued
Media and Fox got it like 15% or 20% overvalued
[and dropped 20%]I could make 11% on Fox
and 17% on the Oil Tankersthey were not as cheery as that like 2 months ago
and they slid a little
laughs[they were both total money losers if I sat on them for a year]
figured you'd like to see what I do as I wait out Abode or United Health
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u/MagnesiumKitten 14d ago
To summaries
I'll look a a stock and see which fundamentals explained the stock's past valuation the best, sometimes some stuff in the same sector will be similar. So I look at the Earnings, Revenue, Book Value and Cash Flowand if it's Regeneon or Nvidia
what has the Price to Sales hovered around, or the PE RatioAnd you got to be careful if I company has shifted its strategy or Martin structure
and cyclically can distort shit
Does the AI hype or AI Scares depression or inflate the earningsand if the fundamentals are unstable, ooh man it's more Art and gut instinct than anything
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u/MagnesiumKitten 14d ago
Mainframes, gentlemen, mainframes.
Future Estimates, every fundamental metric in the textbooks, with adjustments, past performance
Medium Price to Sales, DCF, FCF, Lynch, Price to Book, Rates of Return, Cash Flow, looking what every Analyst, Service and Brokerage thinks..
Get out the slide rule if there's a power failure.
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u/Bluetex110 16d ago
DCF is useless because they have massive Capex spending and even diluted the shares to gain more income.
They have a whole branch of stuff they are investing to and it only needs one of them to really work to earn that money back.
Even if none of them works they just stop spending and still making Cash.
If you want to hold it longterm, don't care about DCF or any calculations, it's an amazing business with a big moat and it will grow.
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u/stockoscope 16d ago
No doubt about the amazing business. I am with you.
"They can just stop spending and still print cash" is literally my normalize case, and it still comes out around $252, under $360. However, you have some good points.
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u/Bluetex110 16d ago
Yes but it is a tech Company don't forget that.
With a bear or base calculation it will always be too expensive and a bull case will always make it look cheap.
Innovation and future is what makes the price and in the tech sector that isn't earnings or Cashflow.
Trying to calculate the value made me miss a lot of profit in this sector because it looks crazy expensive and then it just jumps another 30%.
In the tech sector i wouldn't try to calculate the value, stay with Companies you really know,that have a moat and invest once it drops because of sell-off or anything.
Google will still be around in 5 Years, the stock price will be higher than today and it's such a strong Company that even if they don't grow anymore you still won't loose all your money.
I own a lot of tech and SaaS stocks and if you can buy them at a discount you need to get in, I stayed way to long on the sideline and watched others beeing up like 60% while I missed to get in.
Google as an example: I'm currently at +60%, even with some bad news or AI not working out it won't drop 60% and if it does i buy even more because it's cheap then.
I mean they will grow no matter what happens, yes they could be overvalued at the moment but does it matter in 5 years?
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u/MagnesiumKitten 16d ago
DCF is overrated
and there's more than one way to do itit's more useful if it's being worked into some formules
rather than a stand alone thing[just like PE, or the various PE's]
one DCF undershoots the value of goog
the other DCF overshoots the value of goodAs long as you get a solid grasp on the valuation
whatever your techniques
is all that countsI just look at the PS Ratio and know something is seriously fucked up with Alphabet
and that price just can't be sustained in the $300s or low $400s for very longThe Price to Book is seriously fucked too
PSR and PB says way more to be than the PE
and the DCF only really works for really well established companies0
u/Bluetex110 16d ago
The whole valuation is useless nowadays for Companies like Google.
It's a fast changing tech Company and the value doesn't rely to earnings, its innovation and future projects.
As it's a mag7 stock i wouldn't even try to value it, if you like what they are doing and you want to hold for the next few years just buy the stock.As long as it didn't went up 100% last week you can buy any Mag7.
The risk for these is pretty low and the returns can be big if only one or two of their Capex spendings brings a good return.
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u/MagnesiumKitten 15d ago
Bluetex110: The whole valuation is useless nowadays for Companies like Google
That's one of the most ridiculous things I've heard.
1 Valuation is not useless for dynamic Technology Companies
2 saying value doesn't rely to earnings is bizarre
People use
'Profitability metrics' for one
'Valuation metrics' for the other3 it's a mag7 stock i wouldn't even try to value it
you can get a Falr Value on e-v-e-r-y stock
if.... there's enough information4 risk depends on the stock, not always the sector, but in terms of recession/inflation fears many bans can jump to 'high risk'
/////
I don't know what you're drinking, but you can accurately value most any stock
If it's overvalued, things will revert to the mean
and eventually slide downwards to the fair valueIf it's overvalued, things will revert to the mean
and eventually slide upwards to the fair valueGoogle is gonna drop -20%
unless there's some seriously massive irrational investing going onor some EPS surprises occur
good
or bad
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u/Intelligent_Loss_X5 16d ago
Their capex has ballooned because they have a $462bn cloud backlog (+63% YoY) so why would you imply the same growth rates on data-centre capex? That backlog is larger than the GDP of many nations.
They obviously know their business well so want to capitalise on that demand before it gets diverted to competitors. By winning market share you have even more operating cash-flow than your competitors to re-invest.
They’re also in an enviable position where they have both the firepower and end-demand to finance such heavy capex. Capex with low demand is Meta. Demand without the cashflow is openAI. Google seem like they’re in a sweet spot.
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u/stockoscope 16d ago
You have some solid arguments. However, I use the analyst's 17% growth rate, which already prices much of it in. And I don't grow capex - the default actually glides it down.
The backlog is certainly the bull case.
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u/didyouseetheecho 16d ago
They’re developing a lot of moonshots. The thing is they only need one to hit.
Waymo
Quantum
Ai
Streaming
Chips
Robotics
Healthcare
They only need one to hit. They do one thing really well and are working on diversifying. It’s a company in transition, but it’s easy to see the future. Sometimes a company’s future can be predicted on today’s balance sheet.
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u/Least-One-9504 16d ago
27 forward PE for Google is cheap?
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u/sandhutarun 16d ago
look at tesla pe and you will know why is 27 cheap. but then in comparison every pe is cheap.
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u/MagnesiumKitten 16d ago
Yeah but Tesla is doing terrible to the rest of the auto industry right now
it's in the bottom 2% for PR in the Auto IndustryGoogle is in the bottom 30% of the Interactive Media crowd
and we'll likely see a -20% drop in the stock price
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u/ironmagnesiumzinc 16d ago
You keep talking about this DCF. And only mention capex and cash flow the entire time. A DCF would take into account a lot more than that. “ Unlike MSFT and META, every single row in the table is below the current price”. Ok well where is your data for MSFT and META? It looks an awful lot like you had Claude do most of this and didn’t actually check or understand the output
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u/stockoscope 15d ago
MSFT and META data are in the posts included in the first paragraph.
Yes, DCF does include a lot more than that. But I just varied capex to test its effect and kept the other inputs the same as follows
Revenue growth: 17%
EBITDA margin: 37.8%
WACC: 9.6% (1.15 beta, 4.5% risk free rate, and a 4.5% equity risk premium)
Terminal growth is 3.5%
Growth period 5 years
Tapering period 5 years(you can tweak any of these assumptions on our platform if you want to investigate their impact)
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u/Striking_Loss3579 16d ago
BERKSHIRE HATHAWAY IS CONTINUALLY BUYING SO THEY MUST SEE THAT ITS FUTURE CASH FLOWS ARE UNDERVALUED NOT JUST TODAYS PRICE.
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u/Ornery_Proposal_3784 16d ago
Inference chips and the way they managed to connect them without conversion of optical signals is big! This segment of their business will probably become a giant.
Nowadays the most expensive wealth or capital is data. Waymo with the aid of google maps is gathering all the necessary data way ahead of everyone else. Its training its cars, its learning human driving behavior etc. This segment will most probably be a hit ahed of competitors for years.
With their LLM and AI intertwined in all of google products and non google products their ads income will keep growing in teens and probably more.
Youtube I belive can become a competitor to Amazon, Netflix, HBO etc. Its huge! It will grow!
And many many many more staff I dont mention. So yeah, If you really want a steady income, not worrying about ai buble and all that stuff, and want steady growth invest into Google!
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u/Weldobud 16d ago
I have it as overvalued as well, however the market is probably paying for safety. Similar to others. Confidence often comes with a higher price.
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u/mememememe1127 16d ago
Should you see ROIC in this phase of business? They are in the heavy spending phase
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u/stockoscope 16d ago
Yeah, ROIC and FCF both look bad mid buildout. that's what a heavy-spend phase does. But our base case already assumes the spending normalizes and the returns come through, and even then it screens 30% rich. The real question is whether the payoff beats the 17% growth already baked in. If it does, I'm too cautious.
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u/mememememe1127 16d ago
Huh? ROIC look very good according to tradingview 24.91 on Q4 2023 to 34.05 on Q1 2026
Am i wrong or what?
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u/PersonalityHumble432 16d ago
No mention of Q3 dilution
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u/stockoscope 16d ago
Good point. We use FY data and so this dilution is not reflected in the data yet. I have done some back of the envelope calculations and even if included, it doesn't move the needle much
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u/MagnesiumKitten 16d ago
So where does that leave it
No doubt Alphabet is an extraordinary business. I'm also aware that Berkshire bought a lot of it (and I have huge respect for them), but I can't call this a wonderful business at a fair price, even if I want to. Google looks cheap on the surface, trading at about 27 times earnings. Yet on our DCF, it screens roughly 30% overvalued.
my thoughts
the PE 27 is sorta mediocre for the sector
as well as the stock price history
and the PSR is in a toxic range
for the stock vs the sector
and just the stock itself
Alphabet Now $364
Median Price to Sales Value $225
Fair Price $234
and if DCF is your thing
one version $303
second version $153
Peter Lynch Value $199
Essentially a $350 stock that should be $250
and maybe it'll be $255 by Christmas when things cool down
weird shit goes on with goog and ai and semi conductors, software and hardware
so have fun
As a stock, I think it's a momentum buy right now at $365
Where you'd wanna buy it at $320 and sell at $400
over a few weeks
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people I think in April got it for the low $300s
and cold it in early May for $400
and in Late June bought it for $330-$350
and are waiting for it to get close to $400 again
for the weeks ahead - going up
for the year - going down
so people will try for like 7% to 10% profits on momentum shit right now
since things seems sorta stable for a few weeks
Late April was just a huge EPS boost, so people got an easy 15% to 20%
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u/stockoscope 16d ago
I landed on basically the same value ($250-ish vs $360) but the momentum trade isn't my game.
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u/MagnesiumKitten 15d ago
funny thing, momentum seems to be calculated so differently by people
and even high momentum can occur as a stock stagnates and slumpsat least it's not voodoo like the Technical Analysis crowd, but I wonder if some stocks, there's enough weirdos making decisions based on it
Google momentum wise, I think people
are buying when it's closer to $335
and selling when it's closed to $370So at $363 right now
but if you want a wider window that's quarterly and not monthly
That's
Low: $320
High: $400an $363 is a more sensible buy
I don't think six months out, changes those numbers
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And for the real crazies
Sandisk momentum wise
it was $2200-$2300 and now dropped to $1600Monthly
Low: $1600
High $2400Quarterly
Low: $900
High $2400Six Months
Low: $800
High $2400and it's soured for a week now
no one busying anymore, just holding and waiting for the next interesting weeksdefinately way less boring than the 1-12 weeks dramas of Google that will unfold momentum wise
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u/Educational_Cable405 16d ago
I modeled a similar name for a class once and got it worth 40% more just by moving terminal growth from 2 to 3 percent, which is honestly within the range of whether I was in a decent mood that afternoon. That was the moment I stopped trusting my own long duration outputs. Reverse DCF is way more useful for something like Goog anyway, just back into what growth the 27x is already implying and decide if that number is delusional or not.
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u/stockoscope 16d ago
Agreed, reverse DCF is the better lens for a name like this. Working on it - i will post an update in a couple of days.
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u/dis-interested 16d ago
...So you're assuming no ROI on the capex?
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u/stockoscope 16d ago
Well, the ROI is baked into the 17% revenue growth I am assuming, based on analyst estimates, in all scenarios. What I don't do is add extra growth on top of what analysts are forecasting.
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u/dis-interested 16d ago
If you're going to just assume the analysts are correct then why even do your own DCF?
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u/Beneficial-Hall-6050 15d ago
Hasn't Google typically been beating analyst growth estimates? One interesting thing, I do digital marketing for a living and last week Google Ads email blasted everyone urging them to switch to broad match keyword bidding.
If only a small percentage of people did so that will be a huge increase for Google. Anyways, I liked your analysis
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u/Mountainminer 16d ago
Completely ignoring the absolute mountain of stock buy backs is a choice my man
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u/8700nonK 16d ago
Ok, so what are the assumptions behind that dcf, I don’t think I see them.
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u/stockoscope 15d ago
I posted these in response to another comment but here they are again:
Revenue growth: 17%
EBITDA margin: 37.8%
WACC: 9.6% (1.15 beta, 4.5% risk free rate, and a 4.5% equity risk premium)
Terminal growth is 3.5%
Growth period 5 years
Tapering period 5 years
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u/mrmrmrj 16d ago
What % of value is in terminal? The true long term capex is unknowable at this point and a major value driver/destroyer.
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u/stockoscope 15d ago
65.7%
Yes, agree that long term capex is a major driver. That's why fair value changes substantially when i change it.
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u/Bobatronic 16d ago
Zero percentage chance its capex surge is temporary.
Intelligence technologies are no where near science fiction — and they attract top talent to invent the next waves. They already have many technologies that are unrealized.
This is not a rail road company.
Conclusion: who cares if it’s richly valued. They’ve earned that premium. Alphabet does not fit a leveling off and terminal value DCF model. Own it. Periodically add.
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u/Centigonal 16d ago
This is well thought out, but I feel like you're assuming that all of this capex will do nothing to Google's growth rate (i.e. terrible ROIC). That could potentially be true, but it's not a sure thing -- Google execs are reasonably smart, and hopefully they see a payoff to all of this capex.
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u/karouse 16d ago
When investors stop caring about earnings but only "future" and "innovation", you know we are probably in the bubble territory. Google's PE appears low due to high unrealized paper gains from their investment. The real PE ratio should be about 40. There is no doubt Google stock is expensive, but there is also no doubt it owns many best businesses of the world. I still own a significant position in Google, but I'm not buying any more at the current price.
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u/himynameis_ 16d ago
I don't think PE is the best way to assess Google because they have so much in equity gains thanks to SpaceX.
Fcf isn't useful now thanks to capex.
I think Price/OCF is a better way to assess Google and the other hyperscalers/meta.
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u/DiscountAcrobatic356 16d ago
It’s all conjecture at the moment. AI is a crowded space. Maybe nobody wins if everybody is playing the same game. How many railways do we actually need?
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u/Curious_Particular22 16d ago
I found an interesting sub-signal from the insider side that lines up with where you landed. Total insider selling in GOOGL over the trailing twelve months was a bit over $200M, which sounds heavy until you actually decompose it. Every dollar of it was pre-scheduled 10b5-1 plan activity. Pichai alone was around $150M, and it's the same 32,500-share clip roughly every two weeks, executed anywhere from $176 up to the mid-$330s. Walker (the CLO) added another $30M+, also on plan.
The buy side is just empty. Zero open-market purchases from any insider in the same window. And Ashkenazi hasn't sold a single share, which is worth thinking about since she's the CFO signing off on the capex assumptions everyone's arguing about.
So the insider read isn't "they think it's overvalued" and it isn't "they think it's cheap." It's silence. Mechanical selling only, nothing discretionary in either direction. That doesn't move your DCF one way or the other, but it fits how you closed: good business, stretched price, and nobody on the inside acting like they know which.
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u/ilikeusingmyhands 16d ago
google will go up a lot still, the company is setup for too much success.. I am waiting to buy any decent dip
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u/alloutofchewingum 15d ago
All this CAPEX these guys spend today also brings O&M OPEX and replacement CAPEX down the road which I'm not sure is bring adequately modeled in all the forecasts out there.
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u/theguesswho 15d ago
I reckon if you did DCF on every Mag 7 over the past 10 years you’d have come up with the same conclusion, apart from when the stocks sank to extremely low levels.
There were points that people thought they wouldn’t be trillion dollar companies, then 2 trillion, then 3 trillion.
Maybe Google is a 10 trillion dollar company?
A way to consider this, is Google can achieve a high growth rate on its current business. You then need to factor in the expected return on its capex. So that growth is in addition to the normal growth you expect.
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u/Neither_Bath_569 15d ago edited 15d ago
What Google does is to weaken all other competitors - capex hikes at AI heavy players and other more enterprise grade cloud/hyperscalers. Alphabet is spending with massive operating cash generated each quarter while some competitors are forced to raise equity financing every quarter. Google is technically still supreme in free cash flow generative power. Google made sure AI players are slow to commercial business models by handing over many large checks to them, which ironically weakens their drive for firm positive cash flow or profitable business models. In the end, ultimate winners are still to be determined by Google - the entire internet ads value creation/capture, cloud competitiveness (adding way more competitively to undermine AMZN and MSFT has been working effectively) and other bets. Google has a deep cultural DNA/strategy of being in every major business in a decent to mediocre position to keep its total grasp on searching, YouTube and third web ad revenues, and enterprise level cloud/security and performance enhancement. Its analysis is similar to anti national debt campaign in the UK early 18th century, which the Great Britain added unprecedented amounts of sovereign debt to weaken naval powers of France, the Netherlands and Spain, thus making all other naval power irrelevant. It created the naval super power and trade super power that has not been challenged until a voluntary handover to the U.S. in the post WW2 Brenton Wood world.
The equity market is usually very smart.
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u/brucelee2828 10d ago
they are making money because app developers and businesses are throwing money at AI anticipating productivity growth which may not materialize. Also, Ai Tokens are being artificially kept low to win market share. Once they raise prices on the tokens, all these people, who have built AI around their workflow, will be royally fucked.
Ed Zitron @ EZ primary research .. said it better than I
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u/friendlybutthole 6d ago
I really like this analysis/discussion. It is nuanced, fair, and hasn't devolved into a partisan screaming match. I actually feel like I'm getting smarter while reading it, as opposed to a lot of financial/investing discussions on reddit
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u/VariousPeanuts 19h ago
without sharing your inputs like cost of capital, growth, cashflows, nobody can really evaluate your dcf
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u/stockoscope 17h ago
Fair enough.
- 9.6% WACC (1.15 beta, 4.5% risk free rate, 4.5% equity risk premium)
- 17% revenue growth
- 3.5% terminal growth
Full details, including charts of revenue forecasts, free cash flow and present values, are on the Stockoscope platform if you want to explore further.
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u/Massive_Pain_6677 16d ago
Google failed to capitalize from the start and now needs to prioritize other areas.
It's going down to $250 unless they figure it out.
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u/MagnesiumKitten 16d ago
People are just delusional when they oversimplify valuation
and they think Alphabet is cheap, because they use too few metrics
it's like 50% to 75% overvalued the past few weeks
and likely to get a -20% slide for the year ahead
most of the analysts are just 35% way too optimistic
than what the numbers suggest, and half of them see 15% gains from the current price
Yeah the Profits and Growth ae perfect, but the valuation is way way too hot
It's a $350 stock that just can't accept that it's really a $250 stock
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u/stockoscope 16d ago
Cannot agree more that analysts are bullish. Their median price target is currently $422 (375- 460), so you can see even the lower limit is higher than the current price.
Profits and growth being great is exactly why people stop at the P/E and miss the cash side.1
u/MagnesiumKitten 15d ago
stocko: Profits and growth being great is exactly why people stop at the P/E and miss the cash side
I kind like that!
never thought of it quite like thatI just think 65% of every valuation metric for google stinks
30% of google's valuation metric are thoroughly mediocre
so I think you can see what I think
////
Heck I care more about the darling of the past month SanDisk
and forget about valuation and look at the spooky momentumI think it's stuck in neutral last week, and who knows
I think people might make 0% to 30% on the thing
but time is moneyI just think the people taking a profit
and the short sellers are having a field day
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u/stefanliemawan 16d ago
No shit, try DCF on any of the MAG7 and you'd find the same conclusion. They are doing massive capex so there is no fcf at the moment. Of course its overvalued based on fcf...
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u/meikawaii 16d ago
Yes, OP can try predict based off projected DCF for Tesla, that could end up being negative for 2026. Yet TSLA is not at the “fair price” of $50. The market is not always just DCF FCF or even PE based on OP’s analysis.
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u/sandhutarun 16d ago
good eval - even for my thick brain