Alphabet Trades for 17 Times Earnings. The S&P 500 Trades for 25 Times Earnings. Is This the Best Stock to Buy in the Market?

Alphabet trades at roughly 17x reported earnings versus 25x for the S&P 500, but the article argues that figure is distorted by mark-to-market gains on investments, including SpaceX. On an operating-income basis, Alphabet is at its highest valuation in five years, though below its prior peak; Q2 revenue grew 24%. The outlook remains constructive on Alphabet's long-term AI position, but investors are cautioned that the apparent P/E discount overstates the stock's cheapness.

Analysis

GOOG’s reported P/E is currently a poor anchor for relative-value screens because mark-to-market investment gains inflate net income without improving advertising, Cloud, or AI unit economics. The more relevant question for the next 1-3 quarters is whether incremental AI monetization and Cloud margin expansion can offset accelerating depreciation, TPU/GPU procurement, and traffic-acquisition costs; if not, the apparent discount to the S&P 500 can become a justified multiple discount. Quant funds screening on trailing EPS may provide short-lived technical support, but institutional investors will increasingly underwrite EV/EBIT and FCF after excluding non-operating gains.

The article’s investment-value assertions require verification against Alphabet filings: a publicly traded SpaceX security and the stated Anthropic valuation/timing should not be treated as investable inputs until confirmed. Even if future investment revaluations are real, they create earnings volatility rather than recurring cash flow, and could raise the market’s required discount rate if investors perceive GOOG as a conglomerate-like holding company. The favorable structural case remains intact only if Search retains query share as AI interfaces scale and Cloud growth converts to durable operating leverage over the next 6-18 months.

Contrarianly, GOOG may be more vulnerable than high-multiple AI peers to a change in valuation methodology: a shift from headline EPS to operating profit can compress its relative multiple despite solid reported earnings. Conversely, evidence that AI Overviews increase commercial-query conversion or reduce serving costs would force upward revisions to core earnings and make the non-operating noise largely irrelevant. Near-term price action is likely catalyst-poor absent earnings, regulatory developments, or independently verified investment disclosures.

Key Decisions for Investors

• Maintain a neutral-to-modest long GOOG only on an adjusted operating basis; add after the next earnings release if Google Services revenue growth and consolidated operating margin meet or exceed guidance while capex intensity does not materially rise. Thesis fails on a sustained deceleration in Search growth, adverse AI-query monetization disclosures, or a meaningful FCF guide-down.
• Express relative AI valuation through long GOOG / short NVDA in equal beta-weighted notional over a 1-3 month horizon only if GOOG’s EV/EBIT discount remains wide after normalizing non-operating investment gains. The pair benefits if investors rotate toward recurring cash generation; cover if NVDA’s next results produce another material upward data-center revenue and gross-margin revision.
• Do not underwrite a trade in SPCX or any purported Alphabet investment gain until security status, ownership, carrying value, and accounting treatment are confirmed in primary filings. Set an event alert for Alphabet’s quarterly 10-Q/earnings materials; the key data are investment-gain magnitude, capex outlook, and management’s adjusted operating-income bridge.
• For downside protection around the next GOOG earnings, consider limited premium put spreads rather than outright shorts if implied volatility is below its pre-earnings range. The risk/reward improves only if consensus continues to rely on reported EPS while operating-income expectations rise; avoid if implied volatility already prices a large post-report move.