Why Alphabet (GOOGL) is the Cheapest Magnificent 7 Stock
The Magnificent Seven stocks are well-known for their groundbreaking technological innovations and high growth. One thing they are not typically known for is favorable valuations, as many of the market's strongest stocks feature valuations to match. However, one Magnificent Seven stock, Alphabet (GOOGL), stands out as a notable outlier and is far cheaper than the rest of this illustrious cohort.
Confident Investing Starts Here:
I'm bullish on Alphabet based on its underrated advances in AI and other business segments, its bargain valuation compared to its peers and the market as a whole, and its attractive combination of dividend growth and share buybacks. Additionally, sell-side analysts collectively view Alphabet as a Strong Buy, with a potential upside of 18% over the next 12 months.
By Far the Biggest Bargain in the Mag 7
Shares of Alphabet are surprisingly inexpensive. Trading at a reasonable 18x 2025 earnings estimates, Alphabet is a fair degree cheaper than all of its magnificent seven peers. Microsoft (MSFT) trades at roughly 35x while Apple (AAPL) trades at 27. Nvidia (NVDA) trades for over 30x forward estimates, as does Amazon (AMZN), while Meta trades for roughly 25x. Lastly, Tesla (TSLA) is an outlier even among this fairly expensive group, trading for over 180x 2025 earnings estimates, for a truly eye-popping valuation.
As you can see, Alphabet stands out as the clear value play among the Magnificent Seven—a group made up of the market's most dominant, high-performing companies. What's even more compelling is that Alphabet trades at a discount to the S&P 500's (SPX) average forward P/E of 21.3. That's striking, considering the S&P includes a broad mix of companies, many of which are far less innovative or profitable than Alphabet. In other words, one of the market's elite tech giants is somehow priced below the average, highlighting just how much value is currently on the table.
AI Presents Risk and Opportunity
Naturally, Alphabet's low valuation reflects a set of concerns, chief among them the fear that its core search business—traditionally centered around users typing queries into the Google search bar and receiving the classic 'ten blue links'—could be disrupted by AI-driven chatbots like ChatGPT. It's a legitimate worry. However, despite the noise, Google still commands a dominant 90% share of the global online search market, which shouldn't be overlooked.
Importantly, Alphabet isn't standing still. The company has taken major steps to future-proof its core business in an AI-first world. One standout example is the rollout of 'AI Overviews,' which now appear at the top of search results, delivering concise AI-generated answers alongside links to trusted sources. Speaking from experience, these summaries are actually quite useful for everyday information gathering. According to Alphabet, AI Overviews already reach 1.5 billion monthly active users, and promisingly, they're monetizing at about the same rate as traditional search ads.
GOOGL Moves Beyond Search
It's also critical to recognize that Alphabet is far more than just a search company. While search contributed 56% of Alphabet's revenue in the first quarter, that leaves a significant 44% coming from its diverse portfolio of other businesses.
Take Waymo, for instance—Alphabet's self-driving unit is steadily advancing. On its Q1 earnings call, the company noted that Waymo is already delivering 250,000 paid rides per week. In 2023, Waymo provided over four million autonomous trips across Los Angeles, San Francisco, and Phoenix, with plans to expand into additional markets this year.
Then there are Alphabet's two other heavyweights: Google Cloud and YouTube. Google Cloud posted $12.3 billion in Q1 revenue, a robust 28% year-over-year increase, underscoring its growing relevance in the enterprise space. Meanwhile, YouTube remains the dominant force in digital media. MoffettNathanson analyst Michael Nathanson recently dubbed it the 'New King of All Media,' highlighting that its projected $54.2 billion in 2024 revenue would make it the second-largest media company globally, trailing only Disney (DIS). He also estimates YouTube's standalone valuation could fall between $475 billion and $550 billion.
In short, Alphabet is a powerhouse well beyond its search engine roots, with compelling growth drivers spanning autonomous vehicles, cloud computing, and digital media.
Setting the Stage for Dividend Growth
Mag 7 stocks, such as Alphabet, are not typically considered go-to dividend stocks, and with a yield of just 0.47%, it's easy to see why. However, look beneath the surface, and Alphabet has potential as a dividend growth stock. After initiating its first-ever dividend in 2024 with a quarterly payout of $0.20 per share, Alphabet recently raised its quarterly payout to $0.21 per share.
It may not sound like much for a company with a share price of over $170 (hence the low yield), but this small step is setting the stage for a future trajectory of dividend growth. Furthermore, Alphabet features a conservative dividend payout ratio of just 11.2%, so there is ample room for the Mountain View, California-based company to continue increasing its dividend payment for years to come.
GOOGL Buys Back Shares
Alongside its modest but growing dividend, Alphabet is also rewarding shareholders through substantial share buybacks. In April, the company announced a massive $70 billion share repurchase program. These buybacks not only return capital to investors but also reduce the total number of shares outstanding, effectively boosting earnings per share and enhancing the value of each remaining share.
All things considered, the blend of steady dividend growth and aggressive share repurchases presents a compelling strategy that could deliver strong returns for investors in the years ahead.
Is GOOGL Stock a Buy, Hold, or Sell?
GOOGL earns a Strong Buy consensus rating based on 29 Buys, nine Holds, and zero Sell ratings assigned in the past three months. GOOGL's average stock price target of $199.11 implies almost 20% upside potential from current levels over the coming twelve months.
Most Undervalued Mag 7 Giant Hides in Plain Sight
Alphabet stock looks like a bargain from just about every angle. It's not only the cheapest among the Magnificent Seven, but it also trades at a discount to the broader market, making its value proposition even more compelling. Despite its low valuation, Alphabet offers a rare combination of a growing dividend, a massive $70 billion share buyback plan, and exposure to some of the most transformative areas in tech.
While some investors worry about potential disruption to Google Search from AI tools like ChatGPT, Alphabet is already innovating with AI Overviews and proving its ability to adapt. Meanwhile, its other business segments—Waymo, Google Cloud, and YouTube—are each thriving in their own right and represent serious long-term growth engines.
Altogether, Alphabet stands out as a remarkably undervalued tech giant with broad upside potential—an outlier in the Mag Seven that deserves a closer look.
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