Is Google the Cheapest "Magnificent Seven" Stock You Can Buy Today?

Despite strong revenue growth (14% YoY) and a burgeoning Google Cloud division with increasing profitability (18% margin, $2.2B operating income), Alphabet's P/E ratio of 18.9 is the lowest among the Magnificent Seven, making it potentially undervalued compared to peers like Meta (26.7) and Microsoft (36). Alphabet's management is also returning capital to shareholders through dividends and buybacks, further enhancing its investment appeal.

Analysis

Alphabet (GOOG, GOOGL) presents a compelling investment case based on its current valuation relative to its robust financial performance and growth trajectory, particularly within its Google Cloud division. Despite a 14% year-over-year revenue increase in constant currency to $90.2 billion in its last reported quarter, and Google Search revenue growing 10% amidst concerns of AI disruption, Alphabet trades at a price-to-earnings ratio of 18.9. This valuation is notably lower than its Magnificent Seven peers such as Meta Platforms (26.7 P/E) and Microsoft (36 P/E), even though Alphabet exhibits comparable revenue growth rates. The company's total revenue over the last twelve months reached $360 billion, a 117% cumulative increase over the past five years, underscoring sustained expansion. Revenue diversification is strong, with YouTube advertising, subscriptions, and Google Cloud each contributing approximately $10 billion in quarterly revenue and demonstrating double-digit growth. Google Cloud is a significant bright spot, with revenue growing 28% year-over-year and nearing $50 billion in annual recurring revenue. Crucially, Google Cloud has achieved a profit inflection, reporting $2.2 billion in operating income in the first quarter of 2025 with an 18% profit margin, indicating its increasing importance to Alphabet's consolidated earnings. Alphabet is actively deploying new AI products like Gemini, and its management is also focused on shareholder returns, evidenced by a 0.5% dividend yield and ongoing share repurchase programs.

Key Decisions for Investors

• Investors should consider Alphabet's current price-to-earnings ratio of 18.9 as potentially indicative of an undervalued asset, especially when compared to peers with similar growth rates and in light of its strong fundamentals.
• The sustained high-growth trajectory and recent profit inflection of Google Cloud, which reported an 18% operating margin on $2.2 billion income in Q1 2025, warrants close attention as a key driver for future earnings expansion.
• Alphabet's commitment to returning capital to shareholders via dividends and consistent share buybacks, combined with its revenue growth and strategic AI investments, offers a multifaceted rationale for potential inclusion in growth-oriented portfolios.
• It remains prudent to monitor the competitive impact of generative AI on Google Search's market dominance and Alphabet's ability to successfully monetize its expanding suite of AI-driven products and services.