Alphabet (GOOGL) Valuation Check After Short-Term Pullback And Strong Multi-Year Returns

Track your investments for FREE with Simply Wall St, the portfolio command center trusted by over 7 million individual investors worldwide.

Alphabet (GOOGL) has been drawing attention after recent share price moves, with the stock showing a negative 1 day and past week return, alongside a negative month performance but a positive past 3 months trend.

See our latest analysis for Alphabet.

That recent pullback, including a 7.36% 1 month share price decline and 5.74% 7 day share price drop, sits against a very strong 1 year total shareholder return of 65.70% and a very large 3 year total shareholder return. Momentum therefore appears to be cooling in the short term after a strong multi year run.

If you are watching how big tech moves around AI, it could be a good moment to scan 34 AI infrastructure stocks as another way to look for related opportunities.

So with Alphabet’s shares easing after a strong 1 year and multi year total return, but trading at an intrinsic discount and below average analyst price targets, is this a fresh entry point or is the market already pricing in future growth?

According to the most followed narrative, Alphabet’s fair value sits at $237.43, which is below the recent $305.72 close, so the story hinges on what justifies that gap.

Alphabet Inc., the parent company of Google, stands as a cornerstone of the tech world, leading in search, digital advertising, AI, and cloud computing. Despite its dominance and innovation, Alphabet is currently the cheapest stock among the “Magnificent 7” (the seven largest U.S. tech companies by market capitalization).

Alphabet’s AI expertise cements its position as a leader in the tech sector. Google AI powers products like Search, Google Assistant, and YouTube recommendations, while the company’s DeepMind division pushes the boundaries of artificial intelligence research.

Read the complete narrative.

The fair value here rests on a detailed view of how fast revenue could compound, how margins could hold up and what future earnings multiple might stick. Curious which of those assumptions does the heavy lifting in this narrative, and how that squares with Alphabet’s current multi segment profit mix and cash generation profile? The full story lays those moving parts out clearly.

Result: Fair Value of $237.43 (OVERVALUED)

Have a read of the narrative in full and understand what’s behind the forecasts.

However, concentrated reliance on advertising and ongoing regulatory scrutiny could pressure margins or limit the speed at which Alphabet can translate its AI and cloud investments into earnings.

Find out about the key risks to this Alphabet narrative.

While the most popular narrative sees Alphabet as 28.8% overvalued against a $237.43 fair value, our multiples work paints a different picture. At a 28x P/E, Alphabet trades at roughly half the peer average of 57.4x and below its own 41.5x fair ratio, which points to valuation risk looking very different depending on which comparison you trust most. So which story do you think the market will lean into next?

See what the numbers say about this price — find out in our valuation breakdown.

If you look at the numbers and reach a different conclusion, or simply prefer to work from your own assumptions, you can build a custom Alphabet view in just a few minutes by starting with Do it your way.

A great starting point for your Alphabet research is our analysis highlighting 4 key rewards and 1 important warning sign that could impact your investment decision.

If Alphabet feels fully researched, do not stop there. Your next strong idea might be sitting in plain sight among quality stocks the market is overlooking.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Companies discussed in this article include GOOGL.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com