Alphabet's operations produced $185.7 billion of cash in the twelve months to 30 June 2026. After $132.4 billion of capital spending (buildings and equipment), $53.3 billion was left. That is free cash flow, a non-GAAP measure because Generally Accepted Accounting Principles (GAAP), the US accounting rules, do not define it.
This post asks how far a Discounted Cash Flow (DCF) of Alphabet moves when its assumptions change. Illustrative inputs give $124 a share on perpetual growth (steady growth after year 10) and $156 on an exit multiple (a sale at a set multiple of year-10 cash flow).
What is an Alphabet DCF? An Alphabet DCF values the company on the free cash flow it is assumed to produce, discounted to today's money.
On perpetual growth, one change at a time gives about $64 a share with stock-based compensation (pay in shares) also deducted from free cash flow, up to about $258 at 30% growth in years 1 to 5.
Capital spending rose 45% against a 13% rise in cash from operations.
Most of the value comes after year 10: 55% of enterprise value (the business before its cash and debt).
Why capital spending sets Alphabet's starting cash flow
Alphabet's fiscal year is the calendar year. The model starts from the twelve months to 30 June 2026: fiscal 2025, plus the first six months of 2026, minus the first six months of 2025.
Source: Alphabet Form 10-K for fiscal 2025 and quarterly report (Form 10-Q) for the quarter to 30 June 2026; YX Insights
Chart 1 starts in 2021 because the recent capital-spending surge sets the starting cash flow. The twelve months overlap fiscal 2025 by six months, so the changes compare overlapping periods: cash from operations rose 13% but capital spending rose 45%.
How the model forecasts ten years of Alphabet's cash flow
The forecast has two stages, as in the Microsoft model in What Is a DCF?.
Stage 1, years 1 to 5: free cash flow grows 15% a year, from $53.3 billion to $107.2 billion.
Stage 2, years 6 to 10: growth fades evenly, from 12.5% in year 6 to 2.5% in year 10, reaching $153.4 billion. In the sensitivity table the fade starts from the changed stage 1 rate.
The Apple DCF post uses the same 15% path so the two compare.
Cash is discounted as if it arrived at each year's end, with year 1 the twelve months after 30 June 2026. Values are as at that date.
Source: Alphabet filings; YX Insights calculations
Chart 2 shows the assumed path before discounting.
Alphabet's discount rate: the Weighted Average Cost of Capital
We discount at Alphabet's Weighted Average Cost of Capital (WACC), worked out from market data on 13 October 2026 as What Is WACC? explains.
Beta, how far Alphabet's shares move for each 1% move in SPY (the Standard & Poor's 500 ETF, an exchange-traded fund), was 1.21 over the 60 months to September 2026.
Aswath Damodaran's page for 1 October 2026 lists equity risk premium estimates, the extra yearly return assumed for shares over Treasuries, from 3.30% to 5.67%. We use 4.20%.
The cost of equity, the return shareholders require, is the risk-free rate (the 10-year US Treasury yield) plus beta times the premium: 5.21% + 1.21 × 4.20% = 10.29%.
The cost of debt is the yield on an index of US corporate bonds with a high credit grade (rated AA), 5.77%.
After the 18.4% GAAP effective tax rate for the twelve months to 30 June 2026, the cost of debt is 5.77% × (1 − 18.4%) = 4.71%.
Equity is 97.7% of capital and debt 2.3%. The mandatory convertible preferred stock, which must convert into ordinary shares on a set date and ranks ahead of them for payment, is left out of the weights. 97.7% × 10.29% + 2.3% × 4.71% = 10.16%, rounded to 10.2% in the model.
Terminal value: two ways to price the years after year 10
The terminal value prices every year after year 10 in one number.
Perpetual growth. We assume cash flow grows 2.5% a year for ever. That is below the 4.5% a year at which US Gross Domestic Product (GDP) grew from 2000 to 2025 before inflation.
The first year after year 10 is one year of growth on year 10, hence the 1 + 2.5%. Dividing by the discount rate less the growth rate adds up the endless stream.
The terminal value is year-10 cash flow × (1 + 2.5%) ÷ (10.2% − 2.5%) = $2,042 billion. Dividing by 1 + 10.2% compounded over ten years, a factor of 2.641, gives $773 billion today.
Years 1 to 5 are worth $303 billion today and years 6 to 10 $321 billion, so years 1 to 10 are worth $624 billion. The enterprise value is $624 billion + $773 billion = $1,397 billion, of which 55% is terminal value.
Exit multiple. The business is assumed sold at the end of year 10 for 20 times that year's free cash flow, as in the Microsoft model. The terminal value is $3,068 billion, or $1,162 billion today. The enterprise value is $1,785 billion, from the unrounded figures; the rounded ones above sum to $1,786 billion.
At 10.2%, 20 times equals perpetual growth of (20 × 10.2% − 1) ÷ (20 + 1) = 5.0%. That is above the 2.5% assumed above, so this method gives $32 a share more.
On 30 June 2026 Alphabet held $242.5 billion of cash and marketable securities (investments that can be sold quickly) against $100.2 billion of debt, excluding leases. The preferred stock is deducted at its $19.25 billion liquidation preference, the fixed amount holders are paid first.
$ million | Perpetual growth | Exit multiple |
|---|---|---|
Enterprise value | 1,396,999 | 1,785,474 |
Cash and marketable securities | 242,474 | 242,474 |
Debt | −100,164 | −100,164 |
Preferred stock | −19,250 | −19,250 |
Equity value | 1,520,059 | 1,908,534 |
Per share (12.230 billion shares, all classes) | $124 | $156 |
The cash includes $87.1 billion of marketable equity securities, meaning shares that trade on a market. $80.0 billion of that is SpaceX shares, which the quarterly report (10-Q) says are subject to near-term restrictions on sale. A further $14.1 billion is restricted through the third quarter of 2027 and left out.
How the answer changes with the assumptions
The table changes one assumption at a time and shows value per share. In the rows for growth in years 1 to 5, stage 2 fades from the changed rate to 2.5%.
Input changed | Perpetual growth | Exit multiple |
|---|---|---|
Illustrative inputs | $124 | $156 |
Years 1 to 5 growth 5% | $77 | $93 |
Years 1 to 5 growth 30% | $258 | $334 |
No fade: 2.5% from year 6 | $107 | $132 |
Later fade: 15% to year 7, then 10%, 5%, 2.5% | $132 | $167 |
Terminal growth 1.5% | $116 | Not applicable |
Terminal growth 4.5% | $148 | Not applicable |
Exit multiple 10 times (implies 0.2% growth) | Not applicable | $109 |
Exit multiple 25 times (implies 6.0% growth) | Not applicable | $180 |
Discount rate 9.2% (one point lower) | $143 | $168 |
Discount rate 11.2% (one point higher) | $110 | $145 |
Debt weight 0% (base 2.3%; discount rate 10.3%) | $123 | $155 |
Debt weight 30% (base 2.3%; discount rate 8.6%) | $158 | $175 |
Stock-based compensation also deducted from free cash flow | $64 | $79 |
Last fiscal year's free cash flow as the start | $167 | $211 |
Marketable SpaceX shares left out of the cash | $118 | $150 |
Source: Alphabet filings; FRED series DGS10, BAMLC0A2CAAEY, GDP; Aswath Damodaran; YX Insights calculations.
Source: Alphabet filings; FRED; Aswath Damodaran; YX Insights calculations
Chart 3 plots the perpetual-growth column. The width of each change is our choice, so the bars do not rank the drivers.
A reader who changes these assumptions gets a different answer. No case is the right one.
The model starts from free cash flow, as in What Is a DCF?, so operating margin and capital spending are not separate inputs. A fuller build forecasts revenue first.
A DCF is one method among several
Multiples such as the price-to-earnings ratio, the forward price-to-earnings ratio and enterprise value multiples compare a company with its peers, which is quick but depends on the peers chosen. A DCF states every assumption, but the answer moves with each.
How to Value a Stock covers the approaches. The reverse DCF post covers a related method.
What the model leaves out
Free cash flow (non-GAAP) does not deduct stock-based compensation, which was $28.1 billion in the twelve months to 30 June 2026, or 52.8% of free cash flow.
The exercise gave about $64 a share with stock-based compensation also deducted from free cash flow, rising to about $258 at 30% growth in years 1 to 5, on perpetual growth. The method is what this post illustrates: each input is a choice that moves the answer.
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Common questions about an Alphabet DCF
How much does an Alphabet DCF change when the assumptions change?
The illustrative inputs give $124 a share on perpetual growth and $156 on a 20 times exit multiple. Changing one assumption at a time gives about $64 with stock-based compensation also deducted from free cash flow and about $258 at 30% growth in years 1 to 5. The sensitivity section lists every case.
What is Alphabet's WACC?
Alphabet's Weighted Average Cost of Capital was 10.16% on 13 October 2026, rounded to 10.2%. Its beta of 1.21 gives a 10.29% cost of equity. Debt is only 2.3% of capital, so the cost of equity dominates. What Is WACC? explains each step.
Does the SpaceX stake count in Alphabet's DCF?
The model counts the marketable SpaceX shares in net cash, cash less debt and preferred stock, which adds $6.54 a share. Leaving them out gives $118. A further $14.1 billion is restricted through the third quarter of 2027 and left out, so total exposure is $94.1 billion. Prices are as at 30 June 2026 and may have moved since.
How are the cash flows timed in this DCF?
Each year's cash is discounted as if it arrived at the year's end. The valuation date is 30 June 2026, while the market inputs to the discount rate are dated 13 October 2026. Discounting mid-year would raise the enterprise value by 5.0%. Moving the valuation date to the date of those inputs would add about 3%.
DISCLAIMER: This article is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.