Is this the last chance to buy this dirt-cheap S&P 500 stock at a discount?

Is this the last chance to buy this dirt-cheap S&P 500 stock at a discount?

  • 25.03.2025 17:38
  • fool.co.uk
  • Keywords: Alphabet

Alphabet (Google’s parent company) is undervalued with low P/E ratios, offering a potential bargain despite risks like anti-monopoly lawsuits. Its strengths include AI expertise, Google Cloud growth, YouTube potential, and strong search business.

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Alphabet

Alphabet

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Analyst rating: Buy

The article discusses Alphabet's undervalued stock, positive outlook due to strong AI capabilities, growth in Google Cloud and YouTube, and potential risks from anti-monopoly lawsuits.

Context

Analysis of Alphabet (Google) Investment Opportunity

Key Facts and Data Points

  • Stock Performance: Alphabet's share price has dropped nearly 10% this year, underperforming the S&P 500 during market panic.
  • Valuation Metrics:
    • Trailing P/E: 21.1
    • Forward P/E: 19.1 (lowest among Magnificent Seven stocks)
    • Forward EV/EBITDA: 11 (same multiple as a decade ago despite strong growth)
  • Market Risks: Potential further declines due to U.S. economic risks and Trump's tariff policies.
  • Regulatory Risks: Facing two anti-monopoly lawsuits from the U.S. Department of Justice, potentially leading to breakup.

Competitive Dynamics

  • Strengths:
    • AI Talent: World-class AI and machine learning engineers provide a competitive moat.
    • Google Cloud: Q4 revenue grew 30% year-over-year to $12 billion.
    • YouTube Potential: Rich dataset for AI model development.
    • Search Dominance: Market leader with Q4 search revenues up 12.5% to $54 billion, despite competition from ChatGPT.

Strategic Considerations

  • Long-Term Growth: Alphabet's core businesses (search, cloud, YouTube) show strong growth potential.
  • Investment Perspective: Author views Alphabet as a long-term bargain, with the stock potentially rebounding as market confidence returns in 2025.

Risks and Challenges

  • Regulatory Uncertainty: Anti-monopoly lawsuits could impact shareholder value.
  • Market Volatility: S&P 500 downturns may cause further share price declines.

Conclusion

Alphabet's undervaluation presents an attractive investment opportunity, but investors must consider risks like regulatory challenges and market volatility. The company's strong AI capabilities, cloud growth, and search dominance position it for long-term success.