Alphabet Stock Looks Like a Big Tech Bargain

Key Points

• Alphabet stock has underperformed the market over the past three years.

• Threats from antitrust suits and AI search competitors are likely weighing on the stock.

• Don't count Alphabet out as it invests in AI and leverages its fortress balance sheet.

• 10 stocks we like better than Alphabet ›

There's no company quite like Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL). The tech giant has long dominated online search, soaking up a huge chunk of digital ad spending as businesses vie for clicks. YouTube is also a big moneymaker, accounting for nearly 10% of all U.S. TV viewership. And let's not forget about Android, which powers the majority of the world's smartphones and helps fuel the company's other businesses. There's also Google Cloud, which is now profitable and at an annual revenue run rate of nearly $50 billion.

Despite solid revenue and profit growth, Alphabet stock has been lagging lately. Over the past three years, shares of Alphabet have underperformed the S&P 500, and they've also lost out to other tech giants like Microsoft. This has created a situation where Alphabet stock looks downright affordable. Based on analyst estimates, Alphabet trades for less than 19 times forward earnings, compared to a P/E ratio of around 30 for both Microsoft and Apple.

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There are valid reasons for investors to be cautious. However, the stock is rarely this cheap, and a massive cash hoard and hefty profits buy the company time adapt to a changing industry.

Image source: Getty Images.

Antitrust and AI

There are two big threats facing Alphabet right now. First, the company is facing antitrust lawsuits around the world. In April, a federal judge sided with the U.S. Department of Justice, saying that Google illegally dominated the online advertising technology market. The DOJ wants Google to sell off parts of the business, potentially including the Chrome web browser and the Android mobile operating system.

While it will be a while before Alphabet is forced to do anything, the worst-case scenario isn't a pleasant one for investors. Chrome and Android feed into the advertising business, and losing either one would represent a significant hit. Alphabet could also be forced to stop paying Apple to make Google search the default on Apple devices, which would potentially eat into the company's advertising revenue.

The second major threat is artificial intelligence (AI), specifically AI search. A recent survey from Vox Media found that 42% of consumers believe that search engines like Google are becoming less useful. That's not a surprise. Alphabet has been stuffing Google search full of ads, optimizing for ad revenue rather than user experience.

While this was fine when there was no viable alternative to Google search, AI has opened the floodgates. Companies including OpenAI and Perplexity have rolled out AI-powered search products that combine the traditional indexing of websites with large language models to produce answers quickly, with a list of citations to boot. AI is far from perfect, still prone to making things up or getting things wrong, but it's injecting a breath of fresh air into the stale online search industry. Perplexity now has 22 million active users, and the company recently launched the Comet web browser to take on Chrome.

Alphabet is fighting back with AI Overviews, which are AI-generated summaries that show up at the top of Google search results. But for the first time in a long time, the company is on the defensive in its core search market.

Time to figure things out

AI could alter Alphabet's core search business as web users gravitate toward AI tools. Alphabet will need to be willing to disrupt itself to avoid falling behind. So far, the introduction of AI Overviews is a strong signal that the company is taking the AI threat seriously. However, there's a real risk that the company's search dominance erodes over time.

Alphabet has around $96 billion in cash and marketable securities on its balance sheet, along with less than $11 billion in debt. The company churned out $34.5 billion in net income during the first quarter of 2025 alone. Google search is still responsible for more than half of total revenue, but other businesses are growing quickly. YouTube ads produced nearly $9 billion in revenue during the first quarter, Google Cloud topped $12 billion, and the company's array of subscriptions and devices reached the $10 billion mark.

AI is a real risk to Alphabet's core businesses, but the company has a mountain of cash at its disposal to invest in AI or make acquisitions. Alphabet has become an AI leader in its own right with its Gemini AI models, which power the impressive Veo 3 AI video generator. Counting out Alphabet in the AI race would be a mistake. With the stock trading at a historically low valuation, investors with some patience might want to consider the online search giant.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Timothy Green has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Apple, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.