Alphabet: About That 'Cheap' P/E Ratio (Rating Upgrade)

Alphabet Inc. (NASDAQ: GOOGL) has long been a bellwether of the tech sector, but its valuation metrics have recently sparked debate among investors. At the heart of this discussion is the company’s price-to-earnings (P/E) ratio, which has dipped to levels that some consider “cheap” relative to its historical averages and peers. This article explores whether Alphabet’s current valuation presents a compelling investment opportunity—and whether recent analyst sentiment might soon reflect this optimism.

The "Cheap" P/E: A Closer Look

Alphabet’s trailing P/E ratio, calculated using the latest 12-month (TTM) diluted earnings per share (EPS), currently stands at 19.17 as of February 2025. This figure sits significantly below its five-year average of 26.15 and even its 12-month trailing average of 25.51, as of August 2024. When compared to peers like Microsoft (P/E 35.07) and Apple (P/E 34.71), Alphabet’s valuation appears strikingly undervalued.

The disconnect between Alphabet’s P/E and its peers is partly due to sector dynamics. While Microsoft and Apple command premium multiples for their dominance in cloud infrastructure and hardware, Alphabet’s core search business faces regulatory scrutiny and slower growth in digital advertising. However, Alphabet’s recent moves—such as its acquisition of cybersecurity firm Wiz—hint at strategic bets to diversify revenue streams.

Forward-Looking Metrics: Growth or Caution?

Alphabet’s forward P/E ratio (based on projected earnings for the next 12 months) is 17.34, even lower than its trailing P/E. This suggests analysts anticipate significant earnings growth—projected to rise from $8.90 to $10.23 per share in the next year, a 14.94% increase. While this growth is plausible given Alphabet’s scale and AI investments, it hinges on navigating headwinds like rising ad competition and macroeconomic uncertainty.

The forward P/E also contrasts with the sector median of 16.92, indicating investors still see Alphabet as a growth engine—even if its current valuation reflects skepticism.

The Analyst Upgrade Catalyst

While no explicit analyst rating upgrades for Alphabet were mentioned in April 2025, the company’s recent performance hints at a potential reevaluation. In Q4 2024, Alphabet beat earnings estimates with an EPS of $2.15 (vs. consensus of $2.12) and reported $96.5 billion in revenue, a 12% year-over-year jump. These results, coupled with a Q1 2025 EPS of $1.89 (exceeding estimates of $1.49), could push analysts to revise their outlook.

Historically, Alphabet’s last upgrade occurred in March 2023, when Exane BNP Paribas raised its price target. With the next analyst report due around April 16, 2025, there’s a window for renewed optimism.

The Investment Case: To Buy or Wait?

Alphabet’s valuation presents a compelling entry point for long-term investors. Key positives include:
- Dominant market position: Alphabet retains ~60% of global search traffic and is expanding into AI-driven tools like Gemini.
- Undervalued relative to peers: A P/E of 19.17 vs. Microsoft’s 35.07 suggests Alphabet is priced for pessimism.
- Strong cash flow: The company’s $350 billion annual revenue (as of 2024) provides ample capital for innovation.

However, risks linger:
- Regulatory pressures: Ongoing antitrust cases in the U.S. and Europe could limit growth.
- Ad revenue saturation: Digital advertising remains Alphabet’s core, but competition from TikTok and AI-driven alternatives is intensifying.

Conclusion: A Buy with a Pinch of Caution

Alphabet’s P/E ratio, at current levels, offers a rare opportunity to buy a tech giant at a discount. The 19.17 trailing P/E and 17.34 forward P/E are compelling, especially given its ~$1.9 trillion market cap and consistent revenue growth. Analysts’ “Moderate Buy” consensus and average price target of $211 (implying a 34% upside from April 2025’s $158.68) further support this thesis.

Yet investors must weigh Alphabet’s undervaluation against its challenges. Regulatory risks and ad market headwinds could prolong the “cheap” valuation, while competitors like Microsoft and Amazon continue to eat into its cloud market share.

For investors with a multi-year horizon, Alphabet’s fundamentals justify a “buy”—but with a caveat: monitor the April 24, 2025, earnings report closely. A strong Q1 2025 performance could catalyze the analyst upgrade mentioned earlier, pushing the stock toward its $211 price target. Until then, patience and a watchful eye on macroeconomic trends remain key.