Alphabet at a reasonable multiple despite owning the world's dominant search engine, the #3 cloud platform, and the leading AI research lab — Ackman's bet on the infrastructure layer of the internet
Bill Ackman
Pershing Square Capital Management
Est. ~11.2% of total portfolio
“Bill Ackman: 'Alphabet owns the infrastructure layer of the internet. Search, video, cloud, mobile OS — these are natural monopolies with enormous network effects.'”
The Business
- Alphabet is the parent company of Google, operating the world's dominant search engine (90%+ share), YouTube (2.5B MAU), Google Cloud (#3), and Android (3B+ devices)
- Revenue is primarily from digital advertising (~77%), supplemented by Google Cloud, hardware, and other bets
- The company operates DeepMind, one of the most advanced AI research labs, with Gemini models integrated across all products
- FY2025: $403B revenue, $132B net income, 32% operating margin, $73B free cash flow
Why They Own It
“Bill Ackman: 'Alphabet owns the infrastructure layer of the internet. Search, video, cloud, mobile OS — these are natural monopolies with enormous network effects.'”
- Google Search is a natural monopoly with 90%+ market share — the ultimate toll booth on the internet's information layer
- FY2025: $403B revenue (+15%), $132B net income (+32%), $73B free cash flow — accelerating profitability
- At 28x earnings, Alphabet trades at a reasonable multiple for a business growing 15%+ with dominant market positions
- AI enhances rather than disrupts Google's business — Gemini integration into Search increases engagement and monetization
- Ackman's concentrated portfolio style requires high-conviction, wide-moat businesses — Alphabet fits perfectly
What the investor sees
Alphabet's GOOG shares trade at approximately $178/share, or 28x trailing earnings. Ackman views this as a fair price for a dominant platform business. The market periodically discounts Alphabet on AI disruption fears (ChatGPT competing with Search), but Google's search share remains 90%+ and AI integration is actually improving monetization. Google Cloud's 30%+ growth and Waymo's autonomous vehicle leadership provide additional growth optionality.
Financial Snapshot
$403B
revenue FY2025
$132B
net income
$10.82
eps
32%
operating margin
$73B
free cash flow
15% YoY
revenue growth
90%+
search market share
2.5B
youtube mau
The Moat
- Search monopoly — 90%+ global market share with 25 years of data advantage
- YouTube dominance — largest video platform with irreplaceable creator ecosystem
- Android ecosystem — 3B+ devices controlling the mobile OS layer
- DeepMind/Gemini AI research leadership
- Distribution moat — default search deals with Apple and browser makers lock in traffic
- Data flywheel — more users create more data, improving AI models, attracting more users
What Could Go Wrong
DOJ antitrust case could force structural remedies like ending Apple search deal
AI chatbot competition from ChatGPT/OpenAI reducing some search queries
Massive AI capex ($50B+) with uncertain returns
77% revenue from advertising creates cyclical exposure
Catalysts
- Gemini AI monetization across Search, Workspace, and Cloud
- Google Cloud growing 30%+ toward profitability inflection
- Waymo autonomous vehicles — market leader in self-driving
- Capital return — $70B buyback authorization reducing share count 2-3% annually
- YouTube Connected TV and Shorts monetization
In Their Own Words
“Bill Ackman: 'We look for businesses with durable competitive advantages and predictable free cash flow. Alphabet generates $73 billion in free cash flow annually — that's an extraordinary business.'”
“Bill Ackman: 'The AI narrative around Google is exactly backwards. Google is not being disrupted by AI — Google IS the leading AI company. Gemini and DeepMind represent decades of research and billions in investment.'”