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Wall Street Continues To Systematically Undervalue Alphabet, So I Continue To Buy

The post Wall Street Continues to Systematically Undervalue Alphabet, So I Continue to Buy appeared first on 24/7 Wall St..

One comparison keeps pulling me back. With Alphabet (NASDAQ:GOOGL), revenue grew 24.2% last quarter, and the stock trades at about 15 times earnings. As long as that gap stays open, the valuation case remains intact.

What Keeps Pulling Me Back to Alphabet

Search, YouTube, Android and Cloud all feed each other. Gemini now runs across every one of them. The Gemini App has 950 million monthly active users, and nearly 90% of the Fortune 100 use Gemini Enterprise. Alphabet rents out AI infrastructure and also runs the consumer products that put AI to work. Both of those strong points sit inside one company.

Three Reasons My Conviction Keeps Growing

Growth picked up. The company got bigger. Q2 revenue reached $119.80B, Alphabet’s 12th straight quarter of double-digit revenue growth. Google Cloud revenue rose 82% to $24.77B, and the Cloud backlog passed $460 billion as of Q1. Critics said AI would eat into Search, yet Search grew 17% to $63.27B.

Margins kept widening while spending climbed. Operating income rose 30.4% to $40.77B, and operating margin expanded 2 points to 34%. Operating cash flow grew 40.8%. Return on equity is at 35.70%.

Wall Street keeps underreacting. Alphabet has beaten EPS estimates for 11 consecutive quarters. After Q2, the stock fell 7.13% on earnings day. Over the next 30 days it gained 9.56%, while the S&P 500 gained 3.43%. The market keeps pricing Alphabet like a mature ad business, while the results show a faster-growing company.

Why Alphabet Stands Out Against Microsoft and Amazon

There’s a first-rate company in Microsoft (NASDAQ:MSFT), and Azure grew 43% last quarter. Its stock costs about 30 times earnings, though, while Google Cloud is growing at 82%. Alphabet’s balance sheet is stronger too: leverage of 0.143 against 0.29, and interest coverage of 175.5x against 50.88x.

Amazon (NASDAQ:AMZN) grew AWS revenue 37%. Its stock trades at about 36 times earnings and 368 times free cash flow. Its operating margin stands near 11%. Alphabet’s is 32.06%.

Risk I Refuse to Ignore

The AI buildout is expensive, and I own part of the bill. Q2 capex hit $44.92B, up 100.1%, which drove free cash flow to -$5.86B. Its long-term debt rose from $46.5B to $98.2B. Alphabet also stopped buying back stock and raised $49.6B in net equity proceeds, which dilutes my stake. Management has guided to $175B-$185B in 2026 capex.

My case still holds. Net debt-to-EBITDA came in at 0.19, and FY2025 operating cash flow reached $164.71B. Cloud growing 82% tells me the spending is already turning into revenue.

What Investors Should Track From Here

Alphabet raised its quarterly dividend 5% to $0.22. The stock has returned 733.77% over ten years. Analysts expect average 2027 revenue of about $623.6 billion, up from $402.84B in FY2025. In Q2, CEO Sundar Pichai called it “an amazing quarter”. Wall Street keeps pricing Alphabet at the old discount. That valuation gap remains worth tracking.

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