Alphabet (GOOGL): Is a 17 P/E Too Good to Be True?

Alphabet is up about 40% over the past year and trades at a P/E of just 17.1. For one of the biggest companies in the world, that looks like a bargain. Here's what's underneath that number, and where our AI read lands.

What Alphabet actually does

Alphabet is Google and a handful of newer businesses under one roof. Search and other ads are still the core at 56% of sales. Google Cloud is 15% of sales and growing 82%. YouTube ads are 10%, and subscriptions, platforms, and devices add another 12%.

The takeaway is that most of the money still comes from ads, but Cloud is the fast-growing piece, and it's the one that decides whether Alphabet's next decade looks like its last.

Where sales come from

Search & other adsGoogle CloudYouTube adsSubscriptions, platforms, devices

Growth: revenue and earnings

Revenue has climbed from $258B in 2021 to $403B in 2025, and $446B over the last twelve months (TTM). That works out to roughly 12% a year from 2021 to 2025.

Revenue ($B)

Earnings dipped in 2022, from $76B to $60B, then rebuilt to $132B in 2025. FY2025 net margin was 32.8% and operating margin was 32.0%, which is exceptionally high for a company this size.

The TTM bar looks like a jump to $244B, but about $118B of that is estimated, non-cash gains on investments. Strip that out and core earnings are closer to $127B.

Earnings ($B)

Reported earningsEstimated non-cash investment gains (TTM)

Is it actually cheap?

A 17.1 P/E looks like a steal, but it's flattered by those same non-cash gains on private stakes. Using core earnings per share of about $10.32, the P/E is closer to 33x. That's still reasonable for the quality, but it's a very different headline.

There's still a case for the price. Morningstar puts fair value at $433, roughly 27% above today's price, and 50 of 54 analysts rate the stock Buy or Strong Buy. Over the last decade the stock has returned about 8.6x, or roughly 24% a year including dividends, which are tiny.

Moat and leadership

Morningstar rates Alphabet a wide moat, and the reasons stack up: Search, YouTube, Android, and Cloud each reinforce the others with data, distribution, and scale that competitors struggle to match.

On leadership, CEO Sundar Pichai has turned Cloud from a loss-maker into a business with a 31% margin. We rate leadership solid rather than exceptional because of how large the spending plans below have become.

The risk that flips the call

Alphabet is in the middle of a roughly $200B build-out, largely for AI and data centers, and free cash flow has turned negative as a result. The bet is reasonable: Cloud is growing 82% on a $514B backlog. But if that growth slows while the spending continues, the price stops looking cheap, even on generous assumptions.

The AI verdict

Weighing moat (strong), leadership (solid), and growth (strong) against the price, our AI leans Buy. The honest caveat is that this only holds if Cloud growth keeps paying for the spending. Watch free cash flow and Cloud growth each quarter.

Want to see how we handled another mega-cap? Read our Amazon analysis. And for the AI side, our free AI Explained course covers what AI is and where it can go wrong.