Alphabet Inc. is the parent company of Google and a collection of other ambitious technology ventures. Created in a 2015 corporate restructuring, Alphabet acts as a holding company, separating the wildly profitable core Google business from its more speculative, long-term projects, which it charmingly calls “Other Bets.” Think of it like a responsible adult (Google) who consistently pays the bills and funds the creative, and sometimes chaotic, passions of its many siblings (the Other Bets). For investors, this structure provides a clearer view into the financial performance of each part. The core Google segment remains the undisputed engine, encompassing everything from Search, YouTube, and Android to Chrome and Maps. It's one of the most dominant and cash-generative businesses ever created, primarily earning money through a sophisticated Advertising empire. The “Other Bets” are a portfolio of high-risk, high-reward “moonshots” aiming to solve humanity's biggest problems, such as self-driving cars and extending human lifespans.
Understanding Alphabet means understanding its dual personality. On one hand, you have a mature, cash-gushing behemoth. On the other, a venture capital fund on steroids, all housed under one stock ticker ($GOOGL and $GOOG).
This is the Alphabet you know and use every day. The Google segment is a fortress of profitability, built on some of the most powerful digital platforms in existence.
This is where Alphabet places its wagers on the future. “Other Bets” is a collection of independent companies pursuing groundbreaking technologies. These are classic high-risk, high-reward plays that currently lose a lot of money but possess the potential for astronomical returns if even one succeeds.
For investors, the key takeaway is that the massive profits from the “Google” segment completely subsidize the losses from “Other Bets.”
For a value investor, Alphabet presents a fascinating case study in separating a core, predictable business from speculative ventures.
Warren Buffett himself has called Google's advertising business a “fabulous” one. Its competitive advantages are immense. The network effects of its platforms mean that more users attract more advertisers, which in turn improves the service for users—a virtuous cycle that is incredibly difficult for competitors to break. The sheer scale of its data collection gives it an analytical edge that is nearly impossible to replicate, solidifying its position for the foreseeable future.
A common mistake is to look at Alphabet's total net income and valuation without dissecting it. A savvy investor will apply a Sum-of-the-Parts (SOTP) Valuation. This method involves valuing the different segments of the business separately and then adding them together. Here’s the value investor's insight: The core Google business is so profitable that its earnings are depressed by the billions of dollars in annual losses from “Other Bets.” By valuing the stable, profitable Google segment based on its standalone earnings (as if the “Other Bets” didn't exist) and then assigning a separate, speculative value to the “Other Bets” portfolio (which some analysts value at zero or even as a negative liability), you can often arrive at a total company value much higher than the current market price. The market sometimes fails to see the forest for the trees, penalizing the entire company for the “moonshot” spending, which can create a compelling investment opportunity.
No investment is without risk, not even a titan like Alphabet.