Alphabet (GOOGL) stock clearly offers substantial value relative to its growth, but in today’s sentiment-driven market, that doesn’t necessarily translate into outsized alpha. Realistically, investors can likely expect annual price returns of around 15% over the next few years—a solid performance, though not extraordinary. That said, for portfolios seeking above-market growth with a strong foundation of resilience, Google remains a compelling choice, so I’m maintaining a moderately Bullish outlook.
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Google Deserves Credit Before Any Drawbacks Are Recognized
Before diving into the risks, it’s important to recognize that Google (GOOGL) remains one of the most resilient high-tech investments available. In FY24 alone, advertising revenue rose more than 10% year-over-year, Google Cloud jumped 30%, and YouTube grew 15%. These are strong numbers by any measure. Still, with advertising making up roughly 75% of total revenue, investors have some valid concerns, particularly around the modest growth in this core segment and the competitive pressure from AI leaders like OpenAI, which could limit Google’s dominance in the emerging AI space.
That said, it’s far too early to count Google out. With CEO Sundar Pichai leading the charge and co-founders Larry Page and Sergey Brin becoming more engaged amid the AI shift, there’s a clear signal that the company is gearing up for a deeper transformation.
While Microsoft (MSFT) is making strides with AI integration across its Office suite and Windows, Google holds a unique and powerful advantage—it dominates the web, owning about 90% of internet search traffic. Even in an AI-driven world, most users still turn to Google for fast, general-purpose queries. Its rollout of AI Overviews blends the familiar with the new, reducing the friction users might feel compared to using more disruptive chatbot interfaces like ChatGPT.
For Google to fully capitalize on this opportunity, management needs to make Gemini—its flagship AI model—more compelling and intuitive. Features like advanced memory and personalization would go a long way in winning user trust and adoption. If Google can modernize Search without disrupting its core ad model, it could not only maintain its dominance but potentially improve monetization over time. That said, its ad business remains vulnerable in the near term, making execution in the AI space more important than ever.
Google’s Excellent Valuation Offsets Market Share Risks
The potential for long-term shifts in how users navigate the internet—driven by AI advancements—casts a shadow over Google’s advertising revenue outlook. This adds weight to already moderate growth expectations. Currently, 55 analysts forecast normalized earnings growth of 19.5% for Fiscal 2025, but that estimate drops sharply to just 6.5% for 2026. Revenue is projected to grow around 10% annually over the next few years, signaling a more tempered trajectory.
On the bright side, GOOGL stock remains attractively valued relative to its sector. It trades at a forward P/E ratio of 19, compared to the sector average of 14—a 36% premium. However, that premium is supported by forward diluted EPS growth of 21%, significantly outpacing the sector’s 12%—a 75% advantage. This valuation gap suggests that the stock may be undervalued, offering investors a degree of downside protection as the company navigates the evolving AI landscape.
In a base-case scenario, Alphabet is likely to retain its leadership position, albeit with gradual erosion in its internet navigation market share. That could place some pressure on long-term returns. Still, its compelling valuation helps buffer against these risks.
Technically, GOOGL stock is trading just above its 50-week moving average, with a 14-week RSI of 55, indicating that the stock is fairly valued at current levels.
For conservative, low-alpha portfolios focused on capital preservation, holding GOOGL remains a reasonable choice. However, elite growth investors might find stronger upside opportunities elsewhere. Even so, it’s hard to be anything but broadly bullish on Alphabet over the long term, given its dominant position in tech and exposure to enduring secular trends.
Is Alphabet a Buy, Sell, or Hold?
On Wall Street, Alphabet has a consensus Strong Buy rating based on 28 Buys, nine Holds, and zero Sells. The average GOOGL price target of $202.24 indicates an 11% upside potential over the next 12 months.
Alphabet Projected to Maintain Its Upward Trajectory
Despite the current concerns about AI disrupting Google’s ad revenue dominance, I think this risk is mitigated by two crucial elements. First, management’s proactive approach shows risk mitigation at the operational level. Second, the company’s valuation is exceptional for a company of this quality, providing a margin of safety for investors who are nervous about the current changes in Google’s market due to AI. Overall, given the confluence of factors surrounding the stock, I remain Bullish on GOOGL.