Has Alphabet (GOOGL) Pulled Back Enough After Recent AI Headlines To Offer Value?

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• If you are wondering whether Alphabet is still a good entry or add-on at around US$302.02 per share, the key question is how that price stacks up against what the business might reasonably be worth.

• The stock has pulled back recently, with a 5.2% decline over the last 7 days and an 8.5% decline over the last 30 days, even though the 1 year return sits at 65.0% and the 3 year return is very large.

• Recent headlines have focused on Alphabet’s position in artificial intelligence and its ongoing regulatory scrutiny, which help frame how investors are thinking about both growth potential and risk. These themes often influence how quickly sentiment can shift, especially after such strong multi year share price performance.

• On our checks, Alphabet scores a 4 out of 6 valuation score. This suggests some areas screen as undervalued while others look more fully priced. We will walk through what that means across different valuation methods before finishing with a broader way to think about what value really looks like for this stock.

Alphabet delivered 65.0% returns over the last year. See how this stacks up to the rest of the Interactive Media and Services industry.

A Discounted Cash Flow model takes estimates of the cash a business could generate in the future, then discounts those cash flows back to today to arrive at an estimated value per share.

For Alphabet, the model used is a 2 Stage Free Cash Flow to Equity approach based on cash flow projections. The latest twelve month free cash flow is about $97.8b. Analyst and extrapolated estimates put free cash flow at $192.4b by 2030, with a detailed path of projected cash flows each year from 2026 through 2035 provided in the model.

Simply Wall St converts all those projected cash flows into today’s dollars and arrives at an estimated intrinsic value of about $344.95 per share. Against the current price of around $302.02, that implies a 12.4% discount, so the shares screen as undervalued on this DCF view.

This is only one lens, but it suggests the current price sits below what the cash flow model implies the business could be worth.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Alphabet is undervalued by 12.4%. Track this in your watchlist or portfolio, or discover 56 more high quality undervalued stocks.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Alphabet.

For a profitable company like Alphabet, the P/E ratio is a useful way to link what you pay for each share to the earnings the business is currently generating. It gives you a quick sense of how many dollars investors are willing to pay today for one dollar of current earnings.

What counts as a “normal” P/E depends a lot on growth expectations and risk. Higher expected earnings growth and lower perceived risk usually support a higher P/E, while slower growth or higher uncertainty often points to a lower one.

Alphabet currently trades on a P/E of about 27.6x. That is above the Interactive Media and Services industry average of 11.7x, yet below the peer group average of 57.7x. To make sense of this, Simply Wall St uses a proprietary “Fair Ratio” model, which estimates what a suitable P/E could be for Alphabet given its earnings growth profile, profit margins, industry, market cap and key risks. For Alphabet, this Fair Ratio is 41.5x, which is higher than the current P/E of 27.6x, suggesting the shares screen as undervalued on this metric.

Result: UNDERVALUED

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Earlier we mentioned that there is an even better way to think about valuation, so let us introduce Narratives, a simple way for you to connect your view of Alphabet’s future to hard numbers for revenue, earnings, margins and fair value.

A Narrative is essentially your story for the company, written in financial terms, where you spell out what you think is realistic for Alphabet and the platform turns that into a forecast and a fair value that you can compare to today’s price.

On Simply Wall St, Narratives live on the Community page and are easy to use. You pick assumptions rather than build a spreadsheet, and the engine links the story you believe, the forecast that follows and the fair value that drops out at the end.

For Alphabet, one Narrative on the platform currently anchors around a fair value of about US$212 per share with a 30% profit margin, while another assumes a fair value closer to US$502 with revenue growth of 26% and a future P/E of 30x. This shows how different investors can look at the same company and still reach very different conclusions about whether the current price of around US$302.02 feels high or low.

Because these Narratives update as new data, news or earnings are added to the platform, you always see how your story stacks up against fresh information and against what other investors think Alphabet is worth right now.

For Alphabet, however, we will make it really easy for you with previews of two leading Alphabet Narratives:

These sit on opposite sides of the debate, so you can quickly see how different assumptions on growth, margins and multiples translate into very different views of what the shares might be worth.

🐂 Alphabet Bull Case

Fair value in this Narrative: US$340.00 per share

Implied discount to this fair value at US$302.02: 11.2%

Revenue growth assumption: 17.36%

• Sees Alphabet as a cash generating compounder built on digital ad scale, YouTube, Android and a growing portfolio of subscription and Other Bets assets.

• Highlights AI as a core strength feeding into Search, Cloud and Workspace, with a focus on Gemini and DeepMind, and expects Berkshire Hathaway’s stake to support a higher future P/E multiple.

• Points to a very strong balance sheet, sizeable buybacks and long term earnings power, while still flagging regulatory, ad cycle and AI competition risks.

🐻 Alphabet Bear Case

Fair value in this Narrative: US$212.34 per share

Implied premium to this fair value at US$302.02: 42.2%

Revenue growth assumption: 13.47%

• Assumes digital advertising and cloud computing continue to support growth, but that the share price already reflects these trends generously.

• Views generative AI as sustaining rather than disruptive, with meaningful revenue potential over time, but also points to currently high query costs and the risk of search cannibalisation.

• Builds in higher profit margins helped by cost controls and cloud scale, while stressing concentration in advertising, regulatory uncertainty and potential shifts in search market share.

Taken together, these Narratives show you how two credible sets of assumptions can land more than US$120 apart on fair value, even while both recognise Alphabet’s scale in search, cloud, AI and advertising. The key for you is to decide which story about growth, profitability and risk feels closer to how you see the business, then use that as the anchor for judging whether today’s price makes sense.

Curious how numbers become stories that shape markets? Explore Community Narratives

Do you think there’s more to the story for Alphabet? Head over to our Community to see what others are saying!

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.

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