Thinking about what to do with Alphabet shares lately? You are definitely not alone. The stock has been on a serious upward swing, and its price action is causing more than a few double-takes among investors. In the past week alone, Alphabet rose 4.1%, added 7.7% over the last month, and has delivered 28% gains for shareholders over the past year. Going further back, if you held on for five years, you are looking at a 143.1% return. Clearly, this stock is no stranger to momentum.
But what is behind these moves? Part of the story is Alphabet’s expanding role in cloud computing, highlighted by a massive $10 billion-plus deal with Meta Platforms. Alphabet also landed a government agreement to bring its Gemini AI to federal agencies. At the same time, there have been shifts in its health-tech efforts, with Verily scaling back device ambitions to tighten its focus on artificial intelligence. These moves signal that Alphabet is doubling down on areas with significant growth potential. This brings both excitement and new questions about risk and reward.
With a valuation score of 3 (out of a possible 6) based on standard checks for undervaluation, Alphabet is undervalued in half the key areas analysts look at. But what does that really mean for your investment decision? In the next section, we will break down each valuation approach used in the score and explain what the numbers are telling us about Alphabet right now. And before you decide, there is another way to size up a company’s true worth, which we will get to at the end of this article.
Why Alphabet is lagging behind its peers
The Discounted Cash Flow (DCF) model estimates what Alphabet is worth today by projecting its future cash flows and discounting them back to their present value. This approach is popular among analysts for assessing a company’s intrinsic value using expectations for future cash generation.
Currently, Alphabet generates a strong Free Cash Flow of $81.4 billion. According to analyst projections, this figure is expected to grow significantly, reaching $140.2 billion by the end of 2029. For years beyond available analyst forecasts, Simply Wall St extends the projections and anticipates Alphabet’s Free Cash Flow to more than double over the next decade.
Based on these cash flow projections, the DCF model estimates the fair value of Alphabet’s shares at $238.49. This suggests the stock is trading at a 13.0% discount to its calculated intrinsic value and indicates it is undervalued according to this method.
Result: UNDERVALUED
Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Alphabet.
GOOGL Discounted Cash Flow as at Aug 2025
Our Discounted Cash Flow (DCF) analysis suggests Alphabet is undervalued by 13.0%. Track this in your watchlist or portfolio, or discover more undervalued stocks.
The Price-to-Earnings (PE) ratio is a widely used valuation metric, particularly for profitable companies like Alphabet. It gives investors a quick way to assess how much they are paying for each dollar of a company’s earnings. This makes it a convenient tool for comparing valuations across similar firms.
Growth expectations and risk play a significant role in determining what a “normal” or “fair” PE ratio should be. Companies with strong growth prospects or lower risk typically justify higher PE ratios, while those facing slower growth or greater uncertainty are assigned lower ones.
Alphabet currently trades at a PE ratio of 21.7x. This is above the Interactive Media and Services industry average of about 15.0x, but below the peer group average of 57.4x. These benchmarks help provide context, but they do not fully capture Alphabet’s unique fundamentals.
This is where Simply Wall St’s proprietary “Fair Ratio” enters the picture. The Fair Ratio for Alphabet is 32.3x, factoring in earnings growth, industry landscape, profit margins, market cap, and company-specific risks. Unlike basic peer or industry comparisons, this approach offers a more nuanced gauge of what the company’s PE “should” be.
Comparing Alphabet’s actual PE of 21.7x to its Fair Ratio of 32.3x suggests that the stock may currently be undervalued by this metric. This reflects a better value than standard industry or peer comparisons alone might indicate.
Result: UNDERVALUED
NasdaqGS:GOOGL PE Ratio as at Aug 2025
PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.
Earlier, we mentioned there is an even better way to understand valuation. Let’s introduce you to Narratives. A Narrative is your personalized story and perspective about a company that turns the raw numbers, such as future revenue, margins, and fair value, into a connected, meaningful investment thesis you can act on.
Narratives go beyond simple ratios by linking what you believe about a company’s future directly to a financial forecast and ultimately to a fair value estimate. Using the Narratives tool on Simply Wall St’s Community page, millions of investors now create, update, and compare these stories to make smarter timing decisions about when to buy or sell, specifically by tracking Fair Value versus today’s Price in real time.
Because each Narrative is updated as soon as new earnings, forecasts, or news appear, your investment thesis is always current. For instance, right now, users project Alphabet’s fair value anywhere from $166 to $269 per share, depending on whether they expect moderate growth and margin pressures or rapid AI-driven expansion and stronger profitability.
Narratives let you test, explain, and share your view in a few clicks, giving you an accessible, dynamic way to invest with conviction and adapt as the story develops.
For Alphabet, however, we’ll make it really easy for you by providing previews of two leading Alphabet Narratives:
🐂 Alphabet Bull Case
Fair Value: $212.34
Current Price vs. Fair Value: Undervalued by 2.3%
Projected Revenue Growth Rate: 13.47%
Alphabet’s dominant search and advertising businesses, combined with growth in cloud computing, are expected to drive steady revenue growth. Digital ad and cloud markets are projected to expand significantly in the coming years.
Management is taking a careful and deliberate approach to integrating generative AI. This approach is described as “sustaining” rather than “disruptive,” with new AI features anticipated to enhance user experience and monetization while maintaining core search revenues.
Improvements in cost-cutting and operational efficiency could lead to increased profit margins. Risks to consider include over-reliance on advertising, competitive pressure from rivals, and potential regulation of AI technology.
🐻 Alphabet Bear Case
Fair Value: $171.36
Current Price vs. Fair Value: Overvalued by 21.1%
Projected Revenue Growth Rate: 10.0%
Alphabet’s AI integration, cloud profitability, and YouTube monetization are all strong factors contributing to growth, but the stock’s recent performance may have outpaced its fair value, with growth moderating to around 10% annually.
There are multiple tailwinds, including market leadership in search and cloud, digital advertising growth, and successful cost optimization. Risks include regulatory pressure, increasing AI competition, and the potential for macroeconomic slowdowns.
Although long-term opportunities in AI, cloud, and global markets exist, significant regulatory actions or major losses in core market share could have a meaningful impact on future growth and profitability.
Do you think there’s more to the story for Alphabet? Create your own Narrative to let the Community know!
NasdaqGS:GOOGL Community Fair Values as at Aug 2025
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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