Alphabet Stock Undervalued with 29% Upside Potential in Alphabet stock
The company's strong growth drivers, improving profitability, and promising AI developments make it an attractive investment opportunity, with a potential 29% upside, and analysts believe the market overestimates the risks, ignoring Google's AI and cloud benefits, offering a margin of safety for investors.
Alphabet Inc Class A stock is undervalued, with a calculated intrinsic value of $141.97 per share, lower than the current market price of $173.02, resulting in a -17.95% margin of safety, but analysts believe the stock has a 29% upside potential due to its strong cloud business growth and promising AI developments.
The DCF valuation was based on a 9% discount rate, 3% terminal growth rate, and a weighted average cost of capital (WACC) of 9%, with forecasted free cash flows (FCFs) for Alphabet Inc Class A calculated for the years 2025-2029. The terminal value was calculated using the perpetuity growth model, resulting in a present value of $1,306.5 billion. Despite the current economic uncertainty, Alphabet's stock has dropped 11% year-to-date, making it a "no-brainer" buy, with analysts having an average price target of $220, a 25% upside from the current level.
Google's cloud platform and AI advancements, including Gemini app integration, position it well for future growth, with the company's profitability improving, and a notable rise in EBIT and operating margins, making it a solid long-term investment. The company has a strong growth driver in Google Cloud, which saw a 30% jump in revenue, and its YouTube revenue jumped 14% year-over-year. Alphabet also generates significant revenue from advertising, which will continue to drive growth.
In conclusion, Alphabet Inc., the parent company of Google, is a solid long-term investment opportunity due to its diversified range of products and services, including Google Search, Google Cloud, and YouTube, and its recent 20-for-1 stock split in 2022 has made it more accessible to investors, making it a secure long-term investment with a promising future ahead.