By Gerrit Smit, lead portfolio manager of the Stonehage Fleming Global Best Ideas Equity fund
In February 2023, more than $100bn was wiped off Alphabet’s market value in a single day. Google’s AI chatbot, Bard, was unveiled in an unconvincing launch. Just four months after the launch of ChatGPT, perceptions grew that OpenAI was stealing Google’s show. The share price dropped a fifth.
Fast forward to today and Alphabet’s share price is at an all-time high, just weeks after Q3 2025 results that showed it generated more than $100bn in revenue over the quarter – a company record. It now has a market capitalisation approaching $4trn (exceeding Microsoft’s) and Berkshire Hathway has recently made its first investment into the company.
What changed?
In recent months, two key developments have boosted investor confidence. In September, a long-standing search monopoly case filed by the US Department of Justice ended in a ruling that allowed Alphabet to retain Chrome and Android. This removed a significant overhang on the stock.
Then, in the same month, Gemini, its revamped AI chatbot, surged to number one on the App Store, knocking ChatGPT off the top spot. This made it clear that the largely unheralded acquisition by Alphabet (then Google) of DeepMind in 2014 had been a masterstroke of strategic planning, implementation and development, delivering the business the competitive AI tool the market – which had been fretting about the threat of AI to traditional search – had assumed it lacked.
Further enhancing the perception of a turnaround was the launch of a new Google Pixel 10 mobile phone, fully integrated with Gemini AI software and its own custom chips. That puts Alphabet in a strong position in the AI smartphone race, with Android powering more than two thirds of the world’s mobile phones.
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The full stack
Gemini is only one part of a much larger story. Alphabet has strategically been managed to become uniquely the only ‘full stack’ AI vendor with an ecosystem covering all the critical technology components, including:
- Hardware and infrastructure.
Alphabet is alone among the hyperscalers in developing, in conjunction with Broadcom, its own custom chips (TPUs), tailored for AI workloads and inferencing. There also seems business potential with interest from other groups to buy Google’s TPUs. Furthermore, it owns Google Cloud, the world’s third largest cloud computing platform. This unit’s revenue grew 34% year-on-year in Q3 2025, generating more than $15bn. We expect its contribution to Alphabet’s total revenue to rise from 12% on a full-year 2024 basis to 25% in 2029, with a growing margin of 29% and strong free cash flow generation.
- Data.
Google’s decades as the dominant search engine means Alphabet owns one of the world’s largest user data banks, both by volume and diversity. It can train and refine Gemini’s leading-edge Large Language Models (LLMs) on this phenomenal data trove. That is a crucial advantage in the AI arms race.
- Foundational models.
For Alphabet to become an AI leader, it has scope to provide its family of Gemini models to external clients. Some of the biggest hardware players still lack their own AI proposition and need external providers to power their devices. Reports suggest Apple’s next generation Siri will be powered by a custom Gemini model.
- Distribution.
Good distribution is crucial for business success. Seven of Alphabet’s nine platforms and products – including Search, Android, Chrome and YouTube and Gmail – have more than two billion estimated users each. Many of these integrate Gemini models, which will only improve through the network’s vast userbase. It is difficult to imagine a larger world-wide distribution network.
This full AI stack on such scale demonstrates Alphabet’s wide moat and ability to drive profitability over time.
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Other bets
After Alphabet was formed in 2015, Google’s ‘moonshot’ ventures were moved into a separate subsidiary, Other Bets. One of these is Waymo, a leader in autonomous vehicles.
Waymo has been testing its self-driving technology for over a decade and its vehicles have now driven over 100 million fully autonomous miles on public roads, including those from its ride-hailing service Waymo One, which already operates full robotaxi services in five US cities.
Waymo is scaling quickly and has struck deals with companies including Avis, Lyft and DoorDash. It recently announced it will become the first robotaxi provider in the US to offer driverless rides on freeways, enabling it to better compete with rival services. Waymo has announced plans to offer full robotaxi services in London next year.
Alongside Gemini, Waymo demonstrates how Alphabet’s ecosystem is entrenching its wide technological moat, putting it in the driving seat for the next phase of AI: the use of AI agents for complex tasks. Before long, a YouTube viewer will be able to watch an influencer recommend a particular holiday destination, then task an AI agent to check dates on their Gmail calendar, find suitable accommodation via Search, make the booking, order the Waymo, monitor the flight and adjust the car pick-up time accordingly.
Visionary leadership
By big tech standards, Alphabet’s management has a relatively low profile. Yet they are among the best in the business. CEO Sundar Pichai has led the company through transformational changes, including the growth of Cloud and its success in AI. Founders Larry Page and Sergey Brin remain active in providing high level strategic guidance. Importantly, Ruth Porat, the company’s one-time CFO, is now CIO, overseeing strategic investments in early-stage ventures. Her background means these investments are made with a clear focus on financial discipline, long-term returns and value creation. DeepMind and YouTube are good examples of this approach.
Generative AI does, of course, pose a threat to traditional search. However, Google’s search business actually grew its revenue in Q3 to $56.6bn, a 15% year-over-year increase. AI is driving more queries but also yielding better results for the person searching, which means higher engagement levels – a key attraction for advertisers. True to its nature of constant development, Alphabet is reinventing the core part of its business.
The outlook for Alphabet is very encouraging. It has an attractive portfolio of prized assets with multiple income streams, worldwide distribution, a wide moat and strong cash generation that can fund and solidify its leadership in technological advancements.
Having owned this high-quality company since the launch of our fund 12 years ago, it is now our largest position. Managed by a team of visionary, strategic leaders, we believe Alphabet can continue to deliver on its strong record of success.
