Alphabet Inc.GOOGNASDAQ

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DCF Valuation

DCF Valuation Summary

Hold

Fair Value: $342.16 per share(market-calibrated)

+12.7%

Upside to Fair Value

Current

$303.56

Pure Model

$338.44

Fair Value

$342.16

Bull Case

$473.28

Bear Case

$234.97

Market Reality Check

Model Terminal Growth

3.75%

Market-Implied Growth

5.26%

Calibrated Growth

3.98%

Fair value uses 85% model / 15% market-implied terminal growth. Pure model: $338.44.

What's Driving This Ratingfor GOOG

↓

CapEx normalizing toward maintenance

Historical CapEx is 11.53% of revenue (heavy investment phase). Model fades this to 6.00% by Year 10, freeing up ~$58.2B in annual FCF. This is the biggest driver of long-term cash flow improvement.

✓

Premium margins already priced in

EBIT margin of 32.48% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.

↑

Strong near-term revenue growth

Analyst consensus projects 16.59% revenue growth in Year 1, fading to 11.42% by Year 5 and 3.75% by Year 10. Revenue reaches $1.1T by Year 10 (vs $403.0B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $237.87/share (19.0x terminal FCF) while exit multiple gives $439.01/share (42.3x terminal FCF). The 28x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 3.75% growth is more conservative. The base case averages both methods.

🎯

Market pricing in higher long-term growth

To justify $303.56, the market implies 5.26% perpetual growth — 151bps above the model's 3.75%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 66.23% indicates efficient cash generation. FCF reaches $252.6B by Year 10 (24.03% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.09

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)9.39%

Cost of Debt

Pre-tax Cost of Debt0.39%

Tax Rate16.78%

After-tax Cost of Debt0.33%

Equity Weight (E/V)98.08%

Debt Weight (D/V)1.92%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (98.08% × 9.39%) + (1.92% × 0.33%)

= 9.21%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$469.8B	$615.1B	$756.6B	$900.9B	$1.1T
EBIT	$152.6B	$199.8B	$245.8B	$292.6B	$341.4B
Tax	$25.6B	$33.5B	$41.2B	$49.1B	$57.3B
NOPAT	$127.0B	$166.3B	$204.5B	$243.5B	$284.1B
+ Depreciation	$17.9B	$23.4B	$28.8B	$34.3B	$40.0B
- Capex	$54.2B	$63.4B	$68.7B	$70.7B	$63.1B
- Δ NWC	$14.9B	$16.7B	$17.3B	$15.5B	$8.5B
Free Cash Flow	$75.8B	$109.6B	$147.4B	$191.7B	$252.6B
Discount Factor	0.916	0.768	0.644	0.540	0.414
Present Value	$69.4B	$84.2B	$94.9B	$103.4B	$104.7B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$252.6B

Terminal Growth Rate3.75%

WACC9.21%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$4.8T

PV of Terminal Value$2.0T

Exit Multiple Method

Year 10 EBITDA$381.5B

Exit Multiple (EV/EBITDA)28.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$10.7T

PV of Terminal Value$4.4T

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$935.8B

PV of Terminal Value$2.0T

Enterprise Value$2.9T

(-) Net Debt$41.3B

Equity Value$2.9T

Shares Outstanding12.1B

Price per Share$237.87

Exit Multiple Method

PV of Projected FCFs$935.8B

PV of Terminal Value$4.4T

Enterprise Value$5.4T

(-) Net Debt$41.3B

Equity Value$5.3T

Shares Outstanding12.1B

Price per Share$439.01

Pure Model Fair Value

$338.44

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.75%	3.25%	3.75%	4.25%	4.75%
7.21%	$422.04	$437.79	$458.08	$485.23	$523.39
8.21%	$367.37	$376.81	$388.38	$402.86	$421.53
9.21%	$325.08	$331.20	$338.44	$347.13	$357.78
10.21%	$290.80	$294.98	$299.81	$305.44	$312.11
11.21%	$262.15	$265.12	$268.49	$272.35	$276.80

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$234.97

-22.6% vs current

• -25% vs analyst consensus
• Terminal growth: 3.3%
• Beta: 1.36

Base Case

$338.44

11.5% vs current

• Analyst consensus
• Terminal growth: 3.8%
• Beta: 1.09

Bull Case

$473.28

55.9% vs current

• +25% vs analyst consensus
• Terminal growth: 4.3%
• Beta: 0.92

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Technology Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth16.59%

Year 3 Revenue Growth13.88%

Year 5 Revenue Growth11.42%

Year 7 Revenue Growth8.35%

Year 10 Revenue Growth3.75%

Terminal Growth Rate3.75%

Margin & Efficiency

Current EBIT Margin32.48%

Tax Rate16.78%

Historical Capex / Rev11.53%

Terminal Capex / Rev6.00%

NWC / Revenue22.27%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 28x EV/EBITDA (Technology sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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