Stock Spotlight: Alphabet
FILMED IN MARCH 2026
Jennison's Thomas Davis highlight's Alphabet's scale and distribution enabling them to turn AI innovation into real world usage and revenue.
Transcript
Hi I'm Tom Davis, global equity stock picker and this is why we're investing in Alphabet for the Alliance Witan portfolio.
Alphabet, the parent company at Google, is a great growth company on a global scale with durable competitive advantages. Artificial intelligence is reshaping how people find information, how businesses operate and how technology is built and Alphabet is using AI to strengthen and extend its already profitable global platforms.
Alphabet owns and operates some of the most widely used digital services around the world. At its core, there are three businesses. First, there's the original Google Search, the world's leading search engine used by billions of people every day to find information about products and services. This is monetised largely through digital advertising. Second, there's YouTube, the largest global video platform, and it generates revenues through advertising and subscriptions such as YouTube premium and it continues to benefit from growing user engagement. Third there’s Google Cloud, which provides computing power, data storage and artificial intelligence tools to both businesses and governments.
Artificial intelligence is now embedded across all of these services using Google's AI model Gemini. But rather than selling Gemini as a standalone product, Alphabet uses it to improve overall user experience and commercial outcomes across the entire ecosystem. Alphabet plays a critical role in the modern digital economy, and AI is strengthening that role.
Modern AI requires enormous computing power. While AI features may appear on phones or desktops or laptops, most of the heavy processing has to take place in large multi gigawatt data centers and Google Cloud provides that infrastructure, allowing companies to build and run AI applications at scale. Alphabet's one of the few companies globally with scale, capital and technical expertise to operate this entire stack. From designing its own AI chips to running global data centres developing AI models and deploying them directly into consumer and enterprise products.
Alphabet operates in some of the world's largest and fastest growing markets, with AI expanding those opportunities. Digital advertising remains a vast global market. AI powered search allows users to ask longer, more complex questions, increasing engagement and creating new advertising opportunities. AI driven ad campaigns are delivering stronger results for advertisers without reducing the returns on ad spend.
But computing is another major growth engine, and global cloud spending continues to rise, with AI workloads, the fastest growing driver of that demand. Google Cloud grew about 48% last year, exiting 2025 with a revenue run rate of around 70 billion. Around 70% of Google Cloud customers are now using AI services, and operating margins have improved significantly, showing that this is no longer an experimental business for Google, but a profitable one that is scaling.
Alphabet's advantage lies in its scale and distribution. Gemini has around 750 million monthly users and Alphabet has more than 325 million paid subscriptions across services such as YouTube Premium and Google One. This gives the company a powerful way to turn AI innovation into real world usage and revenue.
Investors sometimes worry that a newer AI model could come along that might outperform Gemini. That risk certainly exists in a fast moving industry. But we think that the long term commercial success in AI is less about having the single best model at any given moment, and more about delivering the best overall user experience at scale. Alphabet continually updates Gemini and integrates it across search, Cloud, YouTube, Android, and we believe this ability to iterate quickly and deploy AI improvements to billions of users gives the company a durable advantage.