Alphabet's 2025 Rally: A Value Investor's Look at the Moat, Price, and Next Moves

The core investment case for Alphabet is built on a simple, powerful thesis: a dominant, unassailable business moat trading at a rare discount. This is the rationale highlighted by the Alpha Wealth Insiders Fund in its third-quarter 2025 letter. The fund pointed to Alphabet's "dominant market share and broad scope," . This isn't just market leadership; it's a structural advantage that creates a self-reinforcing ecosystem. The company's ability to integrate its AI offerings, like the Gemini chatbot, across these platforms gives it a unique launchpad for the next technological wave.

The opportunity arose from a period of severe overhang and undervaluation. In early 2025, the stock faced three major questions: its AI competitiveness, the threat of a search monopoly breakup, and the sustainability of its core advertising business. The resolution of the antitrust case in September was a decisive catalyst. While the judge found Google held an illegal monopoly in search, he ruled against the most severe consequences, including the divestiture of Chrome or Android. This removed a massive overhang, allowing the company to retain its core assets and the billions in revenue they generate. The market's reaction was immediate and massive, .

This resolution coincided with a historic low point for the stock. As the antitrust case neared its conclusion, Alphabet's shares could be purchased for in April. That valuation was a stark disconnect from the company's fundamentals, . The Insiders Fund's thesis, therefore, was to buy a market leader at a discount, betting that the combination of its entrenched dominance and the removal of a regulatory threat would drive a powerful re-rating.

The setup is now clear. Alphabet's wide moat-its search and browser dominance-provides a predictable, high-margin revenue stream. The recent antitrust ruling secures that foundation. The remaining question is execution: can the company leverage this moat to win the AI race and maintain its cloud growth? , but the underlying business strength remains. For investors, the lesson is to anchor on the durable competitive advantages, not the short-term volatility.

Financial Execution: Compounding the Moat's Cash Flows

The question of whether Google's premium valuation is justified comes down to the durability of its cash flows. The company's latest results show a business in a powerful compounding phase, where massive revenue growth is being reinvested to deepen its competitive moats in cloud and AI. This is not a sign of inefficiency, but a strategic bet to lock in future dominance.

The scale of the current business is historic. In the third quarter, Alphabet achieved its , a milestone that underscores its entrenched market power. This growth is broad-based, with . More importantly, the engine for future growth is accelerating. Google Cloud's revenue jumped last quarter, . This backlog is a critical indicator of long-term contract strength, signaling that enterprise demand for its AI infrastructure is not a fleeting trend but a multi-year commitment.

Management is executing this growth with aggressive capital expenditure, a move that is often misunderstood. The company has increased its 2025 capex forecast to $85 billion and now expects spending in the . This is not a sign of waste; it is a direct response to a tight supply environment and a backlog of customers for its cloud services. The CFO explicitly tied the increase to strong and growing demand for Cloud products and services and the need to meet AI workload expansion. This is a classic capital-intensive growth play, where today's heavy spending is designed to secure tomorrow's market share and cash flows.

The bottom line is a company compounding its advantages. The $100 billion revenue base provides the fuel, , . For investors, the key is to view this spending not as a drag on near-term profits, but as a necessary and justified bet to widen the gap on competitors like Microsoft and Amazon, whose own capex is also surging. The durability of Google's cash flows depends on this execution, and the numbers show it is moving decisively.

Valuation and the Insider Signal: Price vs. Intrinsic Value

The stock's premium valuation reflects a market that has already priced in much of the 2025 narrative. Alphabet trades at a forward price-to-earnings ratio of , a significant multiple that aligns it with other tech leaders but leaves little room for surprise. This price is a direct result of the company's successful resolution of its three major 2025 questions: it has emerged as a credible AI contender with Gemini, search dominance remains unchallenged, and its antitrust case concluded without a forced breakup. The stock's has brought it from a deeply discounted level to a more typical tech multiple, suggesting that the easy gains are behind it.

Morningstar's fair value estimate of implies only modest upside from current levels. This assessment suggests the market has already discounted the company's wide moat and strong growth profile, particularly the continued dominance of Google Search and the rapid expansion of Google Cloud. For the stock to move higher, investors will need to see sustained execution on these fronts, plus the potential opening of new revenue streams like selling its custom Tensor Processing Units (TPUs) to external customers.

Insider activity provides a counterpoint to the valuation story. Recent sales, including large transactions by CEO Sundar Pichai, are best interpreted as personal financial planning rather than a lack of confidence in the business. The evidence shows a pattern of consistent, diversified sales throughout 2025, with Pichai selling shares at prices ranging from . These sales are typical for a CEO with a large, concentrated stake and are not indicative of a bearish view on the company's long-term prospects. The broader insider activity, which includes sales by other executives and directors, appears to be a routine management of equity holdings rather than a coordinated exit signal.

The bottom line is a stock that trades at a premium for a reason. Its valuation reflects a successful year of de-risking and AI validation. The modest upside from Morningstar's estimate and the routine nature of recent insider sales suggest the market is pricing in a continuation of this positive trajectory, not a dramatic acceleration. For new investors, the setup is one of a high-quality business trading at a fair, not cheap, price.

Catalysts and Risks for 2026: The Value Investor's Watchlist

The massive 2025 rally has resolved the major overhangs, but the stock's next leg depends on proving that its AI investments are now a growth engine, not just a cost center. The primary catalyst is demonstrating that its Gemini AI and custom Tensor Processing Units (TPUs) are accelerating growth in its core businesses, not just increasing expenses. Analysts at Citizens noted that the key question for Alphabet is whether it can , a trend that must continue into 2026. The company's recent success with Gemini 3, which has driven a surge in monthly active users, is a positive signal. However, the market will demand tangible proof that these AI enhancements are boosting engagement and ad revenue in Google Search, the business that still accounts for .

The dominant risk is the sustainability of that search dominance as AI search evolves. While concerns about disruption have eased, the long-term trajectory of search remains a critical uncertainty. The company's ability to maintain its moat hinges on showing that AI Overviews and other features are improving relevance and keeping users engaged, not driving them to competitors. Any softening in search queries or ad performance would directly challenge the stock's valuation premium.

A key opportunity for new revenue is the tangible monetization of its custom TPUs. So far, Alphabet has used all of its in-house AI chips internally, but the potential to sell them externally represents a significant new vector. Reports suggest it is considering a deal to sell a large number of TPUs to Meta, which could challenge Nvidia's dominance and open a new profit stream. As Morningstar analyst Malik Ahmed Khan notes, this capability opens up a new monetization vector through third-party deployments. The bottleneck is scale, as TPU production shares the same factory constraints as Nvidia GPUs. A successful external sale would validate Alphabet's hardware strategy and provide a direct financial return on its massive AI capital expenditure.

For value investors, the watchlist is clear. Monitor search revenue acceleration and user growth in Gemini as proof of AI's growth impact. Watch for any announcements of TPU sales to external customers, which would be a material catalyst. And remain vigilant on the health of the core search business, as its resilience is the bedrock of the entire valuation. The stock is fairly valued at current levels, but its path to further compounding will be determined by its ability to convert AI investment into measurable, diversified growth.