Alphabet $GOOGL Undervalued in Mag 7, Earnings Season Poised for Growth

Among the so-called Magnificent Seven tech giants, Alphabet Inc. (GOOGL) often seems to linger in the shadow of flashier peers like Nvidia or Apple. Yet, as earnings season approaches, a compelling case emerges that Alphabet might be the most underpriced of the lot, with a valuation that fails to fully reflect its diversified revenue streams and long-term growth potential in artificial intelligence and cloud computing. This analysis digs into the numbers and market sentiment to assess whether the stock is indeed a hidden gem among its high-flying counterparts.

Valuation Metrics: A Comparative Lens

Alphabet’s current valuation stands out when stacked against the other Magnificent Seven names, a group comprising Apple, Microsoft, Amazon, Meta Platforms, Tesla, and Nvidia. As of mid-2025, Alphabet trades at a forward price-to-earnings (P/E) ratio of approximately 21.4, based on consensus estimates for full-year 2025 earnings per share (EPS) of around $7.65. This remains notably lower than Nvidia’s forward P/E, recently above 39, and Microsoft at roughly 33, both beneficiaries of heightened investor enthusiasm for AI hardware and software respectively. Even Amazon, still regarded as a growth play, trades around a forward P/E of 45, reflecting rapid forecast EPS recovery after pandemic lows.

Looking at enterprise value to EBITDA (EV/EBITDA), a metric that strips out some accounting noise, Alphabet currently sits at just over 13.5 times forward estimates for 2025, a figure that, though rising modestly in recent years, continues to trail Apple and Microsoft at 18–21 times. These figures, updated as of July 2025 from sources such as LSEG and Morningstar Direct, indicate the market assigns Alphabet a noticeable discount, even as its business expands steadily well beyond core ads.

Earnings Performance and Growth Drivers

Alphabet’s most recent quarterly earnings for Q2 2025 (April to June) reported revenue of $90.6 billion, surpassing analyst expectations of $89.7 billion, alongside an EPS of $2.87 against a forecast of $2.14. Google Cloud, a critical growth segment, posted sales of $12.46 billion, slightly ahead of the anticipated $12.4 billion and reflecting year-on-year growth of just over 26% compared to Q2 2024. The core advertising business continues to generate robust cash flows, with search and YouTube combining for nearly $68 billion in segment revenue—demonstrating resilience even as digital ad market growth normalises post-pandemic.

Contrast this with Tesla, another Magnificent Seven member, where Q2 2025 earnings are expected to show flat to low-single-digit revenue growth and ongoing downward pressure on vehicle margins, owing to intense competition, price wars, and weak Chinese demand. Nvidia, while still the darling of the AI infrastructure boom, faces natural scepticism over sustainability as supply chains normalise and hyperscale demand patterns could shift. Alphabet’s revenue composition—spanning high-margin ads, a growing cloud platform, and an expanding AI offering—offers portfolio diversity lacking in much of its peer group, even as its share price avoids the frothy multiples seen elsewhere.

Market Sentiment and Risks

Beyond the numbers, there’s a palpable sense in financial circles that Alphabet is somewhat misunderstood. Sector commentary, for example, from Bernstein and Jefferies analysts, highlights that debate over generative AI’s impact on search is often mired in hyperbole; empirical data show little tangible erosion in core user base or advertising click-through rates thus far. Moreover, Alphabet’s guidance for capital expenditure in 2025 has been raised again to $72–75 billion, surpassing prior expectations of $58 billion and underlining its bid to keep pace with both internal AI ambitions and competitive pressures from Microsoft Azure and Amazon Web Services.

Risks are, of course, not to be sniffed at. Alphabet continues to face major antitrust scrutiny on both sides of the Atlantic, particularly over ad stack dominance and Android bundling. There is also the perennial threat that a turn in business confidence could crimp digital ad spending more sharply than expected. Yet, much of this risk appears adequately reflected in relative valuation, especially in comparison to Meta, Apple, or Microsoft, each of which grapples with its own unique brand of regulatory or market scrutiny.

Comparative Snapshot: Magnificent Seven Valuations

The table above, compiled from consensus estimates on LSEG (Refinitiv), Bloomberg, and Morningstar Direct as of July 2025, underscores Alphabet’s valuation gap. While Nvidia and Tesla still trade at metrics reflecting speculative growth expectations, Alphabet’s metrics suggest a more grounded, perhaps unduly cautious, market view.

Conclusion: A Case for Reassessment

Alphabet’s position among the Magnificent Seven warrants a closer look as earnings loom. Its valuation, significantly lower than peers on key metrics, combined with steady revenue growth and strategic investments in high-potential areas like cloud and AI, paints a picture of a stock that may be underappreciated. While risks around regulation and competition remain, they are neither unique nor insurmountable. For investors seeking value in a tech-heavy portfolio, Alphabet could well be the quiet outperformer over the next 12 months. If the market continues to sleep on this giant, it might just wake up to a rather pleasant surprise.

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