Should You Buy Alphabet Stock Now or Wait for a Dip?

The share price of Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL) has been on fire over the past year, rising by 65%. The stock's valuation has climbed to $4.06 trillion as it has hit a new all-time high, and it has become the second-most valuable company in the world, behind only Nvidia.

After such an impressive run-up in value, however, you may be having second thoughts about the stock as it has gotten much more expensive. Are you better off waiting for a pullback in price before buying Alphabet's stock, or can it still be a good buy right now?

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Has Alphabet's stock gotten too expensive?

A rising valuation doesn't necessarily mean a stock is expensive. If earnings have been strong and investors have simply been discounting the stock due to other factors, a rally may have been overdue. In Alphabet's case, investors were hesitant about the stock due to concerns around artificial intelligence (AI) and how that might adversely affect Google Search.

But now that Alphabet has shown that it can do well and incorporate AI into its search results effectively, and with its Gemini chatbot providing formidable competition to OpenAI's ChatGPT, it has put those fears to rest. As a result, investors have become bullish on the stock once again, resulting in impressive gains over the past year.

The stock's price-to-earnings (P/E) multiple has risen to 33, which is more than the S&P 500 average of 27, but it's arguably not an egregious valuation. It is, however, also slightly higher than the P/E multiple Alphabet has averaged over the past decade.

Data by YCharts.

Could Alphabet's stock have more room to rise higher?

According to analyst price targets, Alphabet's stock has already peaked, and it's projected to fall by about 2% from where it is today (estimates as of Jan. 27).

But with the tech company still in the early innings of growing its Gemini chatbot and other areas of its business still having plenty of room to get much larger due to AI, I'm optimistic that Alphabet's stock may become more valuable as the year goes on. It may not be too late to invest in the stock, given the plentiful growth opportunities that the company possesses. It's been growing in double digits, and margins remain high at more than 30%.

Ideally, the stock would decline in value so that you could buy it at a lower price, but there's still tremendous value with Alphabet's stock that it can be an excellent investment at its current levels. I believe it will surpass Nvidia in valuation this year.

For long-term investors, now can be as good a time as any to add Alphabet to your portfolio.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Nvidia. The Motley Fool has a disclosure policy.