Calling Alphabet "cheap" at 17 times earnings misses the number that matters

Every week brings another list, and they read like a bargain hunter's dream: "ten technology stocks combining attractive valuations with strong revenue growth." On the surface the megacaps look like the deals of the year. Alphabet trades at roughly 17 times trailing earnings, Amazon at about 20. Contemplate that: a company growing revenue 20% a year, priced at little more than the average stock in the S&P 500, which itself trades near 20 times forward earnings. What more could an investor want?

Here is the catch, and it may be the single most useful valuation lesson in these lists. That trailing number — the price divided by the last twelve months of profit — is only half the story. For Alphabet, the ratio that actually prices the investment, its forward P/E (price divided by what analysts expect next year's profit to be), is about 32 — closer to double the 17 figure the list is selling you. Amazon shows the same gap, roughly 20 times trailing but nearer 38 times forward. Only Meta behaves the way the list implies: about 24 times trailing, 24 times forward.

The trailing P/E is flattering these companies

The gap between trailing and forward is a tell, not a technicality. When a company's trailing P/E sits far below its forward P/E, the market is saying the last twelve months of profit was better than what's expected to continue — and usually it is right, because that profit was flattered by something that does not repeat.

Alphabet is the clearest case. Its reported earnings per share jumped to $5.11 in the first quarter of 2026 and $9.11 in the second, from a run rate near $2.30-$2.90 only a few quarters earlier, while aggressive buybacks shrank the share count that divides those profits. The same story hit Amazon, whose second-quarter EPS of $5.75 on $201 billion of revenue implies a profit margin roughly three times its normal level — a one-time item inflating the trailing column. The forward multiple filters all of that out and shows what the stock really costs against a normal, repeatable year of earnings.

Alphabet is a great business; that doesn't make it a cheap one

None of this is a knock on the business, and the list should get credit for surfacing quality. Alphabet grew revenue 20% year over year and its Google Cloud business surged roughly 63% in the most recent quarter, with operating margin near a third on 60% gross margins and a return on equity close to 50%. That is why the stock has rallied roughly 140% in the past year. The market has, if anything, been rewarding exactly what the list celebrates.

The problem is the word "attractive valuation." Compare the forward numbers to the market, not the trailing ones. The S&P 500 trades near 20 times forward earnings; Alphabet sits closer to 32, a premium of more than half, and even a more forgiving estimate still puts it in the high 20s and overvalued relative to its own fair-value screen. Amazon is costlier still. These are quality growth compounders now priced as such — the market is not mispricing them cheaply, and there is no contrarian edge in pretending it is. On a forward basis, the "discount" the list advertises simply is not there. The one platform that comes closest to a genuine market-like multiple is Meta at roughly 24 times forward with 28% revenue growth — not a bargain, but the least-stretched of the group.

The other half of these lists deserve a separate warning. Names like Palantir at 66 times sales, CrowdStrike at 39, and Datadog at 20 were never "attractive valuation" on any basis — they are high-growth software with rich price tags. Grouping them under the same cheap-tech headline hides that distinction.

Read the forward column before you believe "cheap"

A price-to-earnings ratio is only as honest as the earnings inside it. Any list that sells megacap tech on trailing P/E deserves one follow-up question before you act: does the forward multiple confirm the discount, or does it quietly double the trailing number? If they diverge by a wide margin, the trailing year's profit was probably a one-time event, and the stock is likely more expensive than the headline suggests.

Which means these roundups are best read as a roster of excellent companies, not a roster of bargains. Alphabet, Amazon, and their peers are strong businesses with strong growth — the right question was never whether they are good. It is whether the price already reflects the good, and on the number that matters, it does. The market isn't wrong about these names; "cheap" is simply the wrong frame. That, not any single pick, is what a new investor should take from the list.