Should You Buy Alphabet Stock in 2025? Updated Valuation and Insights

PUBLISHED Apr 5, 2025, 5:18:48 PM        SHARE

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imgParkev Tatevosian on YouTube

Alphabet Inc., the parent company of Google, has been making headlines with a staggering year-to-date decline of over 133% in 2025. With this dramatic drop, investors are questioning whether now is the time to buy Alphabet stock during this dip.

Updated Discounted Cash Flow Valuation

Alphabet’s valuation has been reassessed, reflecting changes in cash flow projections from 2025 to 2035. A notable reduction in free cash flow expectations has impacted the intrinsic value calculation, lowering it to $229 per share, down from previous estimates. Despite this, Alphabet’s stock remains undervalued, currently trading at $164 per share.

Revenue Growth and Market Resilience

Over the last five years, Alphabet has demonstrated consistent double-digit revenue growth. In the most recent quarter, revenue growth hit 11.8%, showcasing robust performance in a $1 trillion addressable market for advertising. Alphabet continues to lead as the dominant player in global advertising revenue generation.

AI Disruption: Challenges and Opportunities

Large language models (LLMs) are posing significant risks to Alphabet’s business, particularly its Google Search segment. Consumer behavior is shifting, with LLMs changing the search landscape. However, Alphabet is countering this disruption with innovations such as AI-integrated search overviews and its proprietary Gemini LLM, which ranks competitively among top-performing AI systems.

Other Business Segments: Bright Spots Amid Risks

Alphabet’s diversified portfolio mitigates the impact of search disruption:

  • Google Cloud: Strong growth, now ranked third among cloud service providers and generating profit margins.
  • YouTube: Increased engagement and ad revenue, bolstered by AI-enhanced recommender systems.
  • Waymo Driverless Cars: Ongoing expansion in cities like Los Angeles, highlighting promising moonshot opportunities.

Capital Expenditures: A Source of Concern

Alphabet plans to invest $75 billion in capital expenditures in 2025, up from $50 billion last year. While bold investments in AI align with the company’s strategy, they introduce additional risk, which tends to make investors cautious.

Final Thoughts: Is Alphabet a Buy?

Despite elevated risks from AI disruptions and increasing capital expenditure, Alphabet's strong fundamentals, undervalued stock price, and diversified business segments make it a compelling choice for long-term investors. The current forward P/E ratio of 16 further underscores its attractiveness.

As one of the top nine stocks to buy in 2025, Alphabet offers a balance of growth potential and challenges that investors must carefully weigh.

https://youtu.be/6Qxopgxndp0?si=FbjYJaz3Y8z7FbmG



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