Is Alphabet a No-Brainer Bargain Buy Right Now?

Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) has delivered great gains to investors over time -- advancing 600% over the past decade, for example, and rising in the double digits just last year as investors piled into the biggest tech stocks. The owner of top search engine Google also has an established track record of earnings growth, making it a company investors know they can count on over time.

So you might expect to pay a lot to get in on Alphabet shares today. But this tech powerhouse, after a pullback in the shares in recent days, right now is trading at its lowest level in months. Why the decline? Investors were disappointed when Alphabet's quarterly revenue missed analysts' estimates -- and capital spending plans exceeded estimates.

Start Your Mornings Smarter! Wake up with Breakfast news in your inbox every market day. Sign Up For Free »

Now, let's consider whether we, too, should worry about the company's latest announcements -- or if this tech giant is a no-brainer bargain buy.

Image source: Getty Images.

Let's "Google it"

First, a bit of background on Alphabet. You probably know the company best for something most of us use every day: Google Search. It's such a popular search engine, holding about 90% of the global market, that it's even part of our vocabulary today. If we don't know the answer to a question, we'll "Google it."

And this has become Alphabet's key to revenue. Advertisers pay to advertise their products and services to us as we use the Google platform -- generating billions of dollars in earnings for Alphabet.

On top of this, Alphabet also has a cloud business, sells devices, and operates an autonomous vehicle unit called Waymo.

Advertising across Alphabet's platforms, and sales of products and services through the cloud business, have helped the company's earnings to advance over time. Return on invested capital also has increased, showing Alphabet has benefited from its investments.

GOOG Net Income (Annual) data by YCharts

Now, let's turn to the recent quarter. Though fourth-quarter earnings per share, at $2.15, slightly exceeded estimates, Alphabet's revenue of $96.47 billion fell short of the $96.56 billion expected by analysts. Meanwhile, the company said capital expenditures would reach $75 billion this year, well beyond the less than $59 billion analysts had predicted.

Growth of Google Services and Cloud

Those two elements disappointed investors, but it's important to consider the full picture. If we look at Alphabet's revenue breakdown, Google Services and Google Cloud each reported double-digit revenue gains -- only the smaller businesses that fall into the "other bets" category saw a drop in revenue. So, Alphabet's key revenue drivers continue to offer a significant amount of growth.

It's also important to consider the progress of Google Cloud in recent times. In the quarter, revenue climbed to more than $11 billion, and operating income reached beyond $2 billion. Google Cloud offers a variety of artificial intelligence (AI)-powered products and services, and these are driving growth -- last year, the number of first-time commitments doubled from the previous year, and the number of deals surpassing $250 million doubled too. This highlights the importance of Alphabet's investment in AI infrastructure, to set the stage for this growth to continue.

As for search, Alphabet's investments in AI are driving improvements in the search engine, offering users more variety and precision when it comes to answers -- and Alphabet says new offerings like AI Overviews are resulting in more use and greater satisfaction.

Of course, keep in mind that Alphabet faces one particular headwind at the moment. A U.S. court ruled against the company in an antitrust case last year, and the Justice Department aims to force Alphabet to sell the Chrome browser. It's clear Alphabet will fight any such request, and I think the government -- as in previous occasions, such as the 1998 case against Microsoft -- will have difficulty completely upsetting the status quo. So, while the case is a risk, I wouldn't let it stop me from buying Alphabet stock.

Now, let's consider valuation. Following the recent share price decline, Alphabet now is trading at 20x forward earnings estimates, down from more than 24x just a few weeks ago. Considering Alphabet's solid earnings track record, its market leadership, and growth in both of its main businesses, this level looks dirt cheap -- and that makes Alphabet a no-brainer bargain stock to buy right now on the dip.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $336,677!*
• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $43,109!*
• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $546,804!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

Learn more »

*Stock Advisor returns as of February 3, 2025

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet 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.