There is more to Alphabet than Google – should you buy in?
Alphabet is more than its Google search engine – it's becoming one of the most influential companies in history. So should you buy Alphabet shares?
Alphabet, Google's parent company, is listed in the US with a total value greater than that of the entire UK stock market. Billions of people use its search engine every day – indeed, the Google name has become so ubiquitous that it is now used as a verb around the globe. Yet there is more to Alphabet than Google.
Beyond search and advertising revenues lies an empire that includes everything from deep-sea cables to self-driving cars and energy storage. The business uses the billions harvested from search advertisements to fund massive bets on the future and is fast becoming one of the most influential companies in history.
The Alphabet name reflects a corporate mission to fund independent bets that produce “alpha” – the term in finance for an investment that outperforms the broader market. Alphabet wants to be the structure underpinning countless future innovations. The name signalled to the market that the firm was no longer just a search engine, but an incubator of new technology.
Alphabet's rise from Google search to global dominance
Search remains Alphabet's largest source of profits. Its enormous scale explains why the company can afford to fund so many broader ambitions. When the business launched from a garage in 1998, it was just one of many experimental search engines competing on the early World Wide Web. Its rapid rise to dominance was driven by a proprietary algorithm called PageRank. Unlike rival systems that mainly counted how often a keyword appeared on a page, Google ranked pages based on the quality and importance of links pointing towards them. A link from a respected university or major news site carried far more weight than one from an obscure blog. This breakthrough produced far more useful search results, triggering a wave of adoption that quickly led to dominance. Put simply, Google search worked much better than everything else.
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Today, Google remains the search engine used by most. It controls more than 90% of the worldwide search market and processes billions of queries every day. Its closest rival, Microsoft's Bing, holds only a tiny share by comparison. Google's reach also extends far beyond its own homepage. The company provides the underlying search infrastructure for countless browsers and software applications around the world. Competitors struggle to replicate what Google has built because search engines improve through users' behaviour. The more people who use the platform, the more data it collects and the better the system becomes. By capturing most of the world's search data, Google continuously improves, creating a self-reinforcing cycle that keeps competitors behind.
This constant stream of searches is transformed into revenue through a system of paid results. When a user searches for a term with commercial value, the engine places sponsored links at the very top of the page, positioned directly above the information. Google avoids charging businesses a flat fee simply to display these links. Instead, it operates on a pay-per-click model, collecting a fee when a user selects a sponsored result. Because millions of consumers use the search box to find products, services and local businesses every second, these small fees accumulate into billions of dollars of highly predictable revenue.
This is so profitable because the underlying mechanics require little human involvement. Traditional advertising agencies only grow by hiring armies of account managers and media buyers to manage campaigns. Google removed much of this by building an automated, self-service advertising platform to run its pay-per-click business. Advertisers simply log into a dashboard, set their budgets and bid against one another for visibility tied to specific queries from users. Valuable searches, such as those related to legal or financial services, command extremely high advertising prices. This allows Google to generate enormous profits from everyday internet traffic without relying on large numbers of highly paid employees.
At the end of last year, Alphabet employed roughly 191,000 people worldwide. However, those workers are spread unevenly across the business. Most do not work directly on the core search or advertising operations. Instead, they are concentrated in labour-intensive divisions such as Google Cloud and areas such as compliance and other administration. The core systems and software that power Google's search engine require only a small group of engineers to maintain and monitor it. By the end of 2025, Alphabet was generating annual revenue equivalent to more than $2.1 million per employee, although the figure within search alone is probably far higher, perhaps as much as $10 million per employee. This ultra-low headcount relative to sales creates a self-operating engine that supports the rest of the organisation, funds Alphabet's broader ambitions and produces vast profits – thought to be $1 billion every two to three days.
Branching out into Google Cloud and beyond
The fastest-growing large-scale part of the business outside of search is Google Cloud. This division sells computing power and data storage to large corporations and public-sector organisations, providing a platform for businesses to build, host and run their own software applications. Unlike the search engine, the cloud business is inherently labour-intensive, requiring a global sales force. By the end of 2025, the unit had exceeded $70 billion in revenue, driven by demand for machine-learning applications. This segment spent years burning cash to build physical data centres, but has now matured into a highly profitable operation, generating billions in quarterly operating income. The third large division within Alphabet is subscriptions and devices. This includes premium, advertising-free access to YouTube, digital storage upgrades through Google One, which pools together personal consumer storage for Google Drive, Gmail and Google Photos. This is distinct from the corporate cloud, focusing instead on individual consumers' hardware, such as Pixel smartphones. Total consumers' subscriptions have climbed past 325 million globally. This division generates more than $50 billion annually.
What ultimately cements Alphabet's dominance is how seamlessly it intertwines these separate businesses. Google Video's early failure was solved by acquiring YouTube, for example, which was then deeply integrated into core search results. Google Maps was built to serve local search needs, but is now embedded directly into the Android operating system and Android Auto vehicles' dashboards. This interconnected web provides built-in, zero-cost marketing across the entire portfolio, making the user's experience smoother while locking consumers firmly inside Alphabet's systems.
The relentless flow of cash allows the parent company to invest on a scale few companies in history can match. Rather than returning profits to shareholders through dividends or share buybacks, Alphabet operates like a vast venture-capital fund. Its investment strategy is divided into three tiers. For near-term product improvements, it uses Google Labs, a fast-moving environment where software teams test early features, such as improved AI systems, directly with the public. For medium-term time horizons, the company focuses on strategic acquisitions, buying external platforms and scaling them over time. Finally, the long-term horizon is handled by X Development (formerly Google X), the “Moonshot Factory” created to back speculative technologies ranging from self-driving cars to grid-scale energy storage. In these ways, Alphabet channels its search, cloud and subscription revenues into tomorrow's cutting-edge technology.
Alphabet's formula for acquisitions
Alphabet has acquired more than 250 technology companies over the years. Each deal has followed a similar formula: acquire a promising but financially constrained technology and scale it using the company's engineering expertise and vast profits. Google Maps originated from Keyhole, a struggling start-up founded in 2001. Keyhole developed a 3D digital globe called EarthViewer 3D and even received early backing from America's Central Intelligence Agency. The technology was impressive, but the business model weak. Keyhole sold its software on physical CDs to real-estate firms and defence agencies. Google recognised that around a quarter of all web searches were location-related and acquired Keyhole in 2004 for roughly $35 million. It removed the expensive pricing, introduced a cleaner, more accessible interface, and relaunched the platform as Google Maps. In the process, it transformed a niche military-style tool into a free utility that has become almost as recognisable as the search engine itself.
The acquisition of YouTube in 2006 stemmed from Google's own failure in online video. Its in-house platform, Google Video, was losing ground to its rapidly growing rival. YouTube succeeded by offering a simple interface that allowed anyone to upload and stream videos easily. However, by the summer of 2006, the company was struggling under the weight of its own popularity. Hosting costs were soaring, while copyright lawsuits from traditional media companies threatened its survival. Realising Google Video had lost the battle, management stepped in with a $1.65 billion acquisition. The takeover rescued YouTube from likely insolvency and allowed Google to secure the leading destination for online video before legacy media companies could shut it down. By the end of 2025, YouTube was generating more than $40 billion in annual revenue.
The 2005 purchase of Android is probably the most successful acquisition. As a start-up, it had been developing an operating system for mobile handsets, but ran short of cash to fund engineering salaries. At the time of its purchase, it was a small company employing eight people and was bought for just $50 million. This was such a small sum at the time that it wasn't even disclosed to the stock market. The goal of the acquisition was to prevent competitors from blocking its search engine on mobile devices. By making Android free, Google rapidly came to dominate mobile software, eventually capturing more than 70% of the global smartphone market. This comparatively small investment helped ensure that the search business continued to grow even as smartphone usage overtook computer usage.
The 2014 acquisition of DeepMind secured Alphabet's lead in AI. The laboratory, which was founded in London by Demis Hassabis, Shane Legg, and Mustafa Suleyman, had assembled one of the world's strongest machine-learning research teams. DeepMind focused on neuroscience-inspired AI and deep reinforcement learning. Yet cutting-edge AI research is very expensive, requiring vast computing resources and highly paid engineers while producing little immediate revenue. Much of Hassabis's time was spent raising venture capital. Recognising that DeepMind needed the support of a company with deep pockets, the founders agreed to a £400 million sale to Google, with Hassabis taking on the role of CEO of the renamed Google DeepMind. The deal kept the research group based in London and provided the resources needed to pursue foundational scientific breakthroughs. That long-term backing ultimately paid off. Among other things, Hassabis's work on protein folding using DeepMind recently won the Nobel Prize in chemistry.
How Alphabet is shooting for the moon
Where Alphabet stands apart is its willingness to invest in technologies that may take decades to mature. The X Development division filters all ideas through a demanding three-part screening process to protect capital. Projects must address a global problem affecting millions, propose a radical breakthrough solution and rely completely on technology that does not yet exist. Incremental improvements are rejected outright. To encourage bold experimentation, X is also designed to reward failure. Teams are expected rigorously to test their ideas and can even receive bonuses for proving a project is technically or economically unworkable before significant resources are wasted.
This strategy has produced a trail of discarded technologies, including mysterious, giant floating barges intended to be high-end, floating marketing showrooms; a technology for storing renewable energy by pumping electricity into massive tanks of molten salt and chilled liquid; high-altitude, helium-filled balloons designed to float in the stratosphere, creating a shifting network to beam wireless internet down to remote rural communities. But the crown jewel of the moonshots to date is Waymo, the autonomous-vehicle division that began life in 2009. Waymo shows how a massive cash cushion allows a company to outlast an industry cycle. While some car makers promised self-driving fleets by 2018 only to scale back their ambitions when machine learning proved too difficult, Alphabet simply maintained its multi-billion-dollar funding trajectory. By refusing to rush out unproven systems to market, the division solved the major challenges.
Waymo has now achieved scale, with roughly 3,700 vehicles operating, servicing half a million paid rides per week. Its fleets of autonomous vehicles operate robotaxi networks across major American cities, including Phoenix, San Francisco and Los Angeles, completing passengers' trips without human drivers. In September of this year, it is due to launch in London. What began as a highly speculative experiment has matured into a genuine advancement in transportation.
Deep underwater, Alphabet is also building global subsea cable infrastructure. This is an ongoing project that has so far created a total of 60,000 miles of armoured cabling crisscrossing the oceans. To support the growth of its cloud services and advertising, Alphabet shifted from renting space on third-party telecommunications networks to owning its own. These subsea lines are the plumbing of the internet, moving vast amounts of data across the world at the speed of light. In owning this infrastructure itself, Alphabet ensures its consumer services operate with lower latency than that of competitors.
Is Alphabet worth owning?
Turning digital advertising revenue into real-world infrastructure requires enormous investment. For investors, the key question is whether these assets will create lasting value or simply become an expensive distraction. The shares of Alphabet rarely look cheap on any conventional valuation metric, but waiting for a deep-value entry point has been a fool's errand. Ever since the company listed on the stock market in 2004, there has never really been a bad time to buy its shares.
Not that the shares have risen consistently. Alphabet's shares have fallen quite significantly a few times over the years, dropping roughly 50% during the 2008 financial crisis and weathering several 20%-30% declines since. Every single decline has proved to be an exceptional buying opportunity, as the underlying earnings have moved relentlessly higher. This compounding has generated astonishing wealth, transforming its founders into centi-billionaires and ranking them among the wealthiest individuals on Earth. The model does not just reward senior executives. In 1999, when Google employed just 40 people, massage therapist Bonnie Brown joined the company part-time. Her pay was only $450 a week, but she also received stock options. Five years later, she retired a multi-millionaire and went on to create her own charitable foundation. Had she kept her shares, she would now be a billionaire.
Despite a massive market valuation of about $4.5 trillion, Alphabet is still growing remarkably quickly. A simple heuristic for evaluating growing companies is to ask whether the business can generate enough operating profit within five years to make its current enterprise value look cheap. Specifically, can its future operating profits reach a tenth of that valuation? For Alphabet, that means aiming for roughly $450 billion in annual operating profit. Last year it made about $190 billion and is forecast to grow at 20%-25% per annum for the next five years. At that level of growth, the company's current trajectory makes $450 billion perfectly feasible.
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Jamie is an analyst and former fund manager. He writes about companies for MoneyWeek and consults on investments to professional investors.