Alphabet Inc - Class A

Alphabet's recent capex guidance has been updated to a range of $195 billion to $205 billion, reflecting an acceleration in capacity delivery to meet growing demand. This increase is indicative of the company's commitment to investing in AI and data center infrastructure, which is crucial for maintaining its competitive edge. The market's scrutiny over hyperscaler capex is evident, yet Alphabet's strategic investments position it well for future growth in AI-related demand. The ongoing expansion in AI capabilities and the company's ability to leverage its existing infrastructure create a strong moat, ensuring its relevance in a rapidly evolving tech landscape.

Alphabet's recent capex guidance has been updated to a range of $195 billion to $205 billion, reflecting an acceleration in capacity delivery to meet growing demand. This increase is indicative of the company's commitment to investing in infrastructure to support AI and cloud services, which are expected to drive future growth. Despite concerns over rising capital intensity and scrutiny from investors regarding returns, Alphabet's strategic investments position it well within the competitive landscape of AI and hyperscaler services, suggesting a strong long-term outlook.

Alphabet's server useful lives increased from three years in 2020 to six years in 2024, which lowers the annual depreciation expense and boosts earnings. However, cash flows remain unaffected by accounting policy changes, highlighting a divergence between earnings per share growth and free cash flow per share growth across hyperscalers over the past four years.

We continue to view that spending as a source of long-term strength rather than a cause for concern. As the only hyperscaler with a fully integrated AI stack spanning chips, infrastructure, models, data and distribution, we believe Alphabet is exceptionally well placed to benefit from the ongoing adoption of AI and it remains a core holding in the portfolio.

Alphabet delivered robust results during the first quarter. Core Google Search revenue accelerated to 19%, the fastest growth in 16 quarters. AI continues to be an expansionary moment for search as search queries are at an all-time high. Google Cloud revenue growth accelerated to 63%, the fastest growth rate it has ever reported. Google Cloud margins expanded to 33%, up from 18% in the first quarter of 2025. Google Cloud backlog grew 5X year-over-year with growth driven by enterprise AI offerings and TPU sales. While we have always had high expectations for Google’s Cloud business, its performance over the last several years has simply been astonishing. Google Cloud is now roughly 40% of our value for the company. As a reminder, 2023 was the first year that Google Cloud posted positive EBIT.

Alphabet was a top contributor to performance during the quarter. Google Search and Cloud continue to accelerate, with Search posting 19% revenue growth and Cloud posting 63% revenue growth, helping drive 30% growth in operating income. We think Alphabet is an exceedingly rare, if not entirely unique, business, growing a nearly $450 billion gross asset base by 40% while maintaining a 30% return on that massive asset base. These are astonishing compounding figures. In addition, Alphabet announced it would begin delivering its proprietary Tensor Processing Units (TPU) to external customer data centers, representing a very sizable new addressable market. We expect Alphabet to continue delivering excellent returns as it helps proliferate AI use cases for businesses, consumers, and data centers.

Alphabet is a holding company that owns a collection of businesses, the largest and most important of which by far is Google. Google is the global leader in online search and advertising and also offers cloud solutions to businesses and consumers globally, with a goal of organizing the world’s information and making it universally accessible and useful. Alphabet reported quarterly financial results that were fundamentally strong and above consensus expectations for most key metrics. The company is seeing the positive benefits of its AI investments in all the core areas of its business, including accelerating search volumes, strong user engagement and streamlined content creation on YouTube as well as the broader advertising business, and faster growth in the company’s cloud business.

Alphabet delivered robust results during the first quarter. Core Google Search revenue accelerated to 19%, the fastest growth in 16 quarters. AI continues to be an expansionary moment for search as search queries are at an all-time high. Google Cloud revenue growth accelerated to 63%, the fastest growth rate it has ever reported. Google Cloud margins expanded to 33%, up from 18% in the first quarter of 2025. Google Cloud backlog grew 5X year-over-year with growth driven by enterprise AI offerings and TPU sales. While we have always had high expectations for Google’s Cloud business, its performance over the last several years has simply been astonishing. Google Cloud is now roughly 40% of our value for the company.

Alphabet delivered robust results during the first quarter. Core Google Search revenue accelerated to 19%, the fastest growth in 16 quarters. AI continues to be an expansionary moment for search as search queries are at an all-time high. Google Cloud revenue growth accelerated to 63%, the fastest growth rate it has ever reported. Google Cloud margins expanded to 33%, up from 18% in the first quarter of 2025. Google Cloud backlog grew 5X year-over-year with growth driven by enterprise AI offerings and TPU sales. While we have always had high expectations for Google’s Cloud business, its performance over the last several years has simply been astonishing. Google Cloud is now roughly 40% of our value for the company.

Alphabet was our strongest performer as the market moved from fearing AI would cannibalise the Google Search business, to recognising the breadth of the company's AI advantages. Search re-accelerated through the year, driven by strength in retail and financial services. AI Overviews and the rapid scaling of AI Mode expanded the share of monetisable queries, reinforcing our view that Search is in an expansionary phase rather than facing cannibalisation. As the only hyperscaler with a fully integrated AI stack spanning chips, infrastructure, models, data and distribution, we believe Alphabet is exceptionally well placed to benefit from the ongoing adoption of AI and it remains a core holding in the portfolio.