Why FPA Source Capital Is Still Backing Alphabet (GOOG)

FPA Source Capital has maintained its position in Alphabet, reflecting a conviction that the parent company of Google remains a durable long-term compounder despite cyclical pressures and regulatory scrutiny. The fund’s continued holding is grounded in Alphabet’s dominant positions across search advertising, YouTube, and an expanding cloud services business — all of which generate strong cash flows and give management optionality.

Alphabet’s advertising engine continues to benefit from entrenched advertiser relationships and scale advantages that are difficult for competitors to replicate. YouTube’s ad and subscription mix provides diversified revenue streams, while Google Cloud, though not yet the primary profit driver, has shown steady revenue acceleration and margin improvement, supporting longer-term growth expectations.

A central reason for FPA Source Capital’s patience is Alphabet’s heavy investment in artificial intelligence. The company’s work on generative AI, along with DeepMind and other AI initiatives, is viewed as a strategic moat that can improve existing products and enable new revenue opportunities across search, advertising, cloud services, and enterprise applications. For long-term investors, these capabilities suggest upside beyond current valuation assumptions.

Alphabet’s balance sheet and cash-generation profile also matter. Robust free cash flow provides flexibility for capital allocation—reinvestments in R&D, strategic acquisitions, and shareholder returns through buybacks and dividends. This financial strength helps the company navigate regulatory headwinds and short-term advertising cycles while continuing to fund innovation.

That said, FPA Source Capital is not blind to risks. Antitrust scrutiny, changes in privacy regulation, and intensifying competition in cloud and AI markets could pressure growth or margins. Valuation is another consideration: the stock’s price can reflect both opportunity and optimism about future execution. The fund’s decision to hold indicates a view that current fundamentals and long-term secular trends outweigh near-term uncertainties.

In sum, FPA Source Capital’s steady position in Alphabet reflects confidence in the company’s dominant ad franchise, accelerating cloud business, AI leadership, and strong cash flow — balanced by awareness of regulatory and execution risks. For disciplined, long-horizon investors, Alphabet remains an attractive core holding when weighed against its potential for continued innovation and monetization.