>Just listening to a show that is exalting Google's share price of over $500. just a few months afer buying non-earning YouTube for $1 billion+.
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>I have only a primitive understanding of the stock market, and one very strong characteristic of the stock market, at least over the latter part of my lifetime, is the lemming-like propensity to 'believe in a model' and pour heavy cash into it. Most model turn out to be flawed when put into practise so lots of money is lost.

Sounds like you're referring to the Enron or all of your eggs in one basket model. This can either be very rewarding or cripling. Taken as a part of a diversified approach the individual will not be hurt very badly. For example, lets say you've invested 80% in other industries and put 20% into Google. Even if Google goes to 0, you've only lost 20%. The other effect, however, is that the money coming out of Google on the way down must go somewhere. Whether Google is considered as tech or advertising, the decline likely means an economic slowdown, so the cyclicals will be seeing an influx of capital and their shares will rise. Therefore any investment you have there will be a beneficiary.

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>As I understand it, Google mainly sells advertising space. It apparently has a few other very minor sources of revenue.
>Google's smart targeting is highly touted and apparently envied by all other businesses.
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>But since when does advertising ONLY make any company worth $500. per share????

The share price is not the value of the company. Exxon is a considerably bigger company yet it's stock is currently $76.

>Can any advertising company have a stock value of $500+?

Yes. In fact the price could be considerably higher if they :
- buy back their shares and thus shrink the available pool.
- increase next year's revenue (currently +70% year-over-year)
- make further acquisitions which investors believe will increase value