Alphabet Inc.GOOGNASDAQ

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DCF Valuation

DCF Valuation Summary

Hold

Fair Value: $291.95 per share(market-calibrated)

-3.8%

Upside to Fair Value

Current

$303.45

Pure Model

$287.72

Fair Value

$291.95

Bull Case

$396.70

Bear Case

$201.92

Market Reality Check

Model Terminal Growth

3.00%

Market-Implied Growth

5.19%

Calibrated Growth

3.33%

Fair value uses 85% model / 15% market-implied terminal growth. Pure model: $287.72.

What's Driving This Ratingfor GOOG

↓

CapEx normalizing toward maintenance

Historical CapEx is 11.53% of revenue (heavy investment phase). Model fades this to 4.50% by Year 10, freeing up ~$72.4B 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 16.64% revenue growth in Year 1, fading to 11.42% by Year 5 and 3.00% by Year 10. Revenue reaches $1.0T by Year 10 (vs $403.0B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $221.54/share (16.3x terminal FCF) while exit multiple gives $353.89/share (31.1x terminal FCF). The 22x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 3.00% growth is more conservative. The base case averages both methods.

🎯

Market pricing in higher long-term growth

To justify $303.45, the market implies 5.19% perpetual growth — 219bps above the model's 3.00%. 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 70.79% indicates efficient cash generation. FCF reaches $264.3B by Year 10 (25.69% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.11

Market Risk Premium4.50%

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

Cost of Equity (Re)9.50%

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% × 9.50%) + (1.92% × 0.33%)

= 9.33%

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	$470.0B	$615.1B	$756.6B	$897.1B	$1.0T
EBIT	$152.7B	$199.8B	$245.8B	$291.4B	$334.2B
Tax	$25.6B	$33.5B	$41.2B	$48.9B	$56.1B
NOPAT	$127.0B	$166.3B	$204.5B	$242.5B	$278.1B
+ Depreciation	$17.9B	$23.4B	$28.8B	$34.2B	$39.2B
- Capex	$54.2B	$61.3B	$63.6B	$61.4B	$46.3B
- Δ NWC	$14.9B	$16.7B	$17.3B	$14.9B	$6.7B
Free Cash Flow	$75.8B	$111.7B	$152.5B	$200.4B	$264.3B
Discount Factor	0.915	0.765	0.640	0.536	0.410
Present Value	$69.3B	$85.5B	$97.6B	$107.3B	$108.4B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$264.3B

Terminal Growth Rate3.00%

WACC9.33%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$4.3T

PV of Terminal Value$1.8T

Exit Multiple Method

Year 10 EBITDA$373.4B

Exit Multiple (EV/EBITDA)22.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$8.2T

PV of Terminal Value$3.4T

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$961.6B

PV of Terminal Value$1.8T

Enterprise Value$2.7T

(-) Net Debt$41.3B

Equity Value$2.7T

Shares Outstanding12.1B

Price per Share$221.54

Exit Multiple Method

PV of Projected FCFs$961.6B

PV of Terminal Value$3.4T

Enterprise Value$4.3T

(-) Net Debt$41.3B

Equity Value$4.3T

Shares Outstanding12.1B

Price per Share$353.89

Pure Model Fair Value

$287.72

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

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.00%	2.50%	3.00%	3.50%	4.00%
7.33%	$355.31	$366.53	$380.35	$397.77	$420.43
8.33%	$311.76	$318.96	$327.51	$337.84	$350.54
9.33%	$277.17	$282.06	$287.72	$294.34	$302.22
10.33%	$248.72	$252.17	$256.10	$260.60	$265.81
11.33%	$224.73	$227.25	$230.08	$233.26	$236.88

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

$201.92

-33.5% vs current

• -25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 1.39

Base Case

$287.72

-5.2% vs current

• Analyst consensus
• Terminal growth: 3.0%
• Beta: 1.11

Bull Case

$396.70

30.7% vs current

• +25% vs analyst consensus
• Terminal growth: 3.5%
• Beta: 0.95

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Communication Services Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth16.64%

Year 3 Revenue Growth13.85%

Year 5 Revenue Growth11.42%

Year 7 Revenue Growth8.05%

Year 10 Revenue Growth3.00%

Terminal Growth Rate3.00%

Margin & Efficiency

Current EBIT Margin32.48%

Tax Rate16.78%

Historical Capex / Rev11.53%

Terminal Capex / Rev4.50%

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: 22x EV/EBITDA (Communication Services 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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