Alphabet Continues to be a Steal: Strong Growth and Undervaluation Support Strong Buy

Alphabet Inc. (GOOGL) continues to be undervalued despite strong top and bottom line growth. The stock was upgraded to a strong buy in a previous article, citing significant undervaluation.

Alphabet Inc. (GOOGL), the parent company of Google, has been the subject of ongoing scrutiny due to its undervalued stock price. Despite the company's robust financial performance, including significant top and bottom line growth, the stock has been perceived as undervalued. This perception is supported by recent market trends and analyst upgrades.

In the second quarter of 2025, Alphabet reported strong earnings, with revenue increasing by 14% year-over-year to $96.43 billion. The company's cloud business saw a notable 32% year-over-year growth, reaching $13.6 billion in revenue. Additionally, Alphabet's AI investments, such as its Chatbot, Gemini, which reached 450 million monthly active users, have been producing impressive results [1].

However, the stock's valuation metrics suggest a potential overbought condition. Alphabet's stock currently trades at a price-to-earnings ratio of 20.5, which is less than the S&P 500 at around 27.5. This valuation, combined with the recent reduction in stake by Yacktman Asset Management LP, indicates a cautious stance among investors [2].

Yacktman Asset Management LP, a renowned value equity investor, has recently reduced its stake in Alphabet Inc. Class C shares by 123,395, reducing its position by 12.4% [1]. This move is part of a broader strategy that saw Yacktman reduce its position in several other stocks, including a significant decrease in Canadian Natural Resources Ltd (CNQ) and Microsoft Corp (MSFT).

Despite the reduction in stake by Yacktman, the company's strong financial performance and positive earnings call highlights underscore its resilience and growth potential. The reduction in stake is not necessarily a bearish signal for Alphabet. The firm's value equity approach often involves strategic adjustments based on market conditions and fundamental analysis.

Institutional interest has been robust, with $95 billion in inflows over the past year, against $51 billion in outflows, representing a solid net inflow of $44 billion [1]. This significant vote of confidence underscores Alphabet's competitive position in the tech sector. Wall Street analysts have also taken a more bullish stance, with a consensus Moderate Buy rating across 43 analysts. The average price target has moved sharply higher to $211.39, following the earnings report [2].

However, option traders exhibit moderate bearish sentiment with a put/call ratio of 0.44 and a slight increase in implied volatility to 29.38 [2]. This cautious approach from traders is likely due to the high market capitalization and competitive landscape.

In conclusion, while Alphabet Inc. (GOOGL) continues to be undervalued, its strong financial performance and robust growth in AI and cloud segments provide a compelling case for investment. The company's scale and profitability provide ample flexibility for strategic investments. Investors should remain vigilant about the evolving competitive landscape and potential valuation risks.

References:
[1] https://www.ainvest.com/news/yacktman-asset-management-cuts-alphabet-stake-123-395-shares-2508/
[2] https://www.ainvest.com/news/alphabet-moderate-bearish-sentiment-price-decline-increased-option-trading-activity-2508/