Alphabet is the dominant toll-booth of the information age — a Munger-style compounder with an unassailable search moat, an AI-first pivot that extends its advantage for decades, and $73B in free cash flow at just 22x owner earnings.
Li Lu
Himalaya Capital
Est. ~15.4% of total portfolio
“The way to think about investing is to find something you really understand deeply. And if you understand it deeply enough, you'll know how much it's worth.”
The Business
- Alphabet is the parent company of Google and one of the world's most valuable businesses.
- It operates Google Search (90%+ market share globally), YouTube (the dominant video platform with 2.5B MAU), Google Cloud (third-largest cloud platform), Android (the world's most widely used mobile OS with 3B+ devices), and DeepMind (one of the most advanced AI research labs).
- In 2024, Alphabet generated $350B in revenue, $100B in net income, and $73B in free cash flow.
- The company is increasingly pivoting to AI-first, with Gemini models integrated across all products and AI infrastructure investment exceeding $50B annually.
Why They Own It
“The way to think about investing is to find something you really understand deeply. And if you understand it deeply enough, you'll know how much it's worth.”
- Li Lu's 44% allocation to Alphabet — split across GOOGL (22.3%) and GOOG (21.6%) share classes — represents the most concentrated single-company bet in his portfolio and signals extraordinary conviction. This is a Munger-school investment: a wonderful business at a fair price with a multi-decade compounding runway.
- Alphabet owns the infrastructure layer of the internet through Google Search (90%+ market share), YouTube (2.5B monthly users), Google Cloud (growing 30%+ annually), and Android (3B+ devices). Each of these platforms exhibits powerful network effects and switching costs that make competitive displacement effectively impossible.
- What makes this quintessentially a Li Lu bet is the intersection of quality and price. Alphabet generated $350B in revenue and $100B in net income in 2024, growing at 14-15% annually — yet it traded at roughly 20-22x earnings when Li Lu was building the position, a discount to the S&P 500 despite superior economics.
- The market was mispricing Alphabet's AI optionality: Google DeepMind and Gemini represent potentially the most valuable AI assets in the world, and the company's $73B in free cash flow funds AI investment without compromising shareholder returns. Li Lu, following Munger's framework of buying great businesses that can reinvest at high rates, sees Alphabet as a knowledge-compounding machine — a business whose competitive advantages grow stronger over time as data, talent, and infrastructure compound.
What the investor sees
Li Lu sees what the market periodically undervalues: Alphabet is not just an advertising company — it is the infrastructure layer of the digital economy. The market intermittently prices Alphabet as a mature ad business facing disruption from AI chatbots, ignoring that Google itself is the leading AI company. DeepMind/Gemini, Google Cloud's AI services, and the integration of AI into Search represent massive optionality that is valued at zero or near-zero in the stock price. At ~22x trailing earnings, Li Lu is paying a fair price for a business growing at 15% with $73B in FCF, $100B+ in cash, and effectively infinite reinvestment runway in AI — the kind of asymmetric setup Munger taught him to find.
Financial Snapshot
$350B (2024); $403B TTM
revenue
$100.1B (2024); $132B TTM
net income
$3.64 trillion
market cap
$72.8B (2024)
free cash flow
27.9x TTM; 26x forward
pe ratio
The Moat
- Search monopoly: 90%+ global market share, 25+ years of accumulated search data and AI training advantage
- YouTube dominance: 2.5B monthly active users, largest video platform by orders of magnitude, irreplaceable creator ecosystem
- Android ecosystem: 3B+ active devices globally, controlling the mobile operating system layer
- Google Cloud: #3 cloud provider growing 30%+ annually, critical AI/ML infrastructure
- DeepMind/Gemini AI: Arguably the deepest AI research lab in the world, with 15+ years of accumulated research
- Data flywheel: More users generate more data, which improves AI models, which attract more users — a self-reinforcing loop
- Distribution moat: Default search deals (Apple, Samsung, browser makers) lock in distribution that no competitor can match
What Could Go Wrong
AI disruption to Search
Google is the leading AI company itself; Gemini integration into Search maintains relevance. The 'Google is disrupted by ChatGPT' narrative has not materialized — Google's search market share remains 90%+.
Antitrust/regulatory action
DOJ antitrust case could force structural remedies (e.g., ending default search deals with Apple). However, even without defaults, Google Search is the best product — users would likely choose it anyway. Worst case: $10-15B annual cost savings from not paying for defaults.
Massive AI CapEx with uncertain returns
CapEx running $50-55B annually, rising. But Alphabet generates $73B+ in FCF even after this spending. AI investment is funded from operations, not debt.
Advertising cyclicality
Advertising is ~77% of revenue. Digital ad spending has proven resilient through recessions and is taking share from traditional media permanently.
Catalysts
- AI monetization: Gemini integration into Search, Workspace, and Cloud represents potentially $50B+ in incremental revenue opportunity
- Google Cloud inflection: Growing 30%+ to a $40B+ annual run rate, approaching profitability inflection
- Waymo autonomous vehicles: Market leader in self-driving, with 150K+ paid rides per week — potential $100B+ TAM
- Capital return acceleration: $70B buyback authorization, share count declining ~2-3% annually
- YouTube monetization deepening: Connected TV, Shorts monetization, YouTube Premium all expanding ARPU
In Their Own Words
“What really matters in investing is avoiding permanent loss of capital. If you can avoid the losers, the winners take care of themselves.”
“Knowledge compounds. The more you know about a business, the more you can know. And that compounding of knowledge is the real edge in investing. Everything else is noise.”
“Charlie taught me that it's far better to buy a wonderful business at a fair price than a fair business at a wonderful price. The key insight is that truly great businesses are rare, and when you find one, you should concentrate.”