Is Alphabet Stock’s 25.55X PE Still Worth it? Buy, Sell, or Hold?
Alphabet GOOGL shares are overvalued, as suggested by a Value Score of D. The GOOGL stock is trading at a forward 12-month price/earnings (P/E) of 25.55X compared with the broader Zacks Computer & Technology sector’s 23.78X.
Alphabet shares are trading at a premium compared with Microsoft MSFT, shares of which are trading at a P/E multiple of 21.95. However, GOOGL shares are trading at a lower multiple compared with Apple’s AAPL 28.68 and Amazon’s AMZN 26.15.
GOOGL Stock’s Valuation
Image Source: Zacks Investment Research
Is Alphabet worth buying at current prices? Let’s dig deep to find out.
AI Push Boosts GOOGL’s Search & Cloud Business
Google continues to dominate the Search business with a roughly 89.98% share, followed by Microsoft’s Bing, with a 5.01% share, per the latest data from StatCounter. The company has been actively embedding AI, especially within Search, to enhance user experience, provide better AI-focused features and consequently improve ad performance. The company shipped more than 250 product launches within AI Mode and AI Overviews in the fourth quarter of 2025, and the company integrated Gemini 3 directly into AI Mode in Search.
Upgradation of AI Overviews to Gemini 3 is offering users a best-in-class AI response at the top of the search results page. GOOGL has made the transition from an AI overview to a conversation in AI Mode completely seamless. This is driving up user experience as well as engagement. In the United States, Alphabet saw daily AI Mode queries per user double since launch, and AI Overviews continue to perform very well. Queries in AI Mode are three times longer than traditional searches. The company is also seeing sessions becoming more conversational, with a significant portion of queries in AI Mode now leading to a follow-up question. Circle to Search is also now available on over 580 million Android devices.
Google Cloud is benefiting from strong Gen AI adoption due to leading models, including Gemini, Imagen, Veo, Chirp and Lyria. Per CRN that cited Synergy Research Group data for the fourth quarter of 2025, Amazon cloud arm AWS, Microsoft and Google Cloud achieved 68% share – roughly two-thirds – of total enterprise spending on cloud infrastructure services. Google Cloud’s market share increased globally while Amazon’s dropped. The addition of Wiz to Google Cloud boosts Alphabet’s security footprint.
Google Cloud’s expanding enterprise clientele has been a key catalyst. More than 120,000 enterprises use Gemini, including AI companies like Lovable and Open Evidence and global enterprises like Airbus and Honeywell. Moreover, 95% of the top 20 and over 80% of the top 100 SaaS companies use Gemini, including Salesforce and Shopify. Alphabet’s expanding AI infrastructure is helping it win enterprise clients. GCP’s prospects remain robust, driven by strong demand for enterprise AI infrastructure, including TPUs and GPUs, enterprise AI solutions driven by demand for the latest Gemini and other AI models, and other services, including cybersecurity and data analytics.
2026 Earnings Estimate Revisions Positive for GOOGL Stock
The Zacks Consensus Estimate for 2026 earnings is pegged at $11.60 per share, up by 3 cents over the past 30 days, indicating 7.3% year-over-year growth. The consensus mark for 2026 revenues is pegged at $407.2 billion, indicating 18.8% year-over-year growth.
Alphabet Inc. Price and Consensus
Alphabet Inc. price-consensus-chart | Alphabet Inc. Quote
The consensus mark for first-quarter 2026 earnings is pegged at $2.76 per share, unchanged over the past 30 days, suggesting 1.8% decline year over year. The Zacks Consensus Estimate for first-quarter 2026 revenues is pegged at $91.69 billion, implying 20% year-over-year growth.
GOOGL’s High Capex Spending Heightens Risk
Alphabet shares have dropped 8.5% post fourth-quarter 2025 results reported on Feb. 4. The drop can be attributed to investor skepticism over GOOGL’s ability to monetize its AI-infused services, given the huge capital expenditure guidance, which is now pegged between $175 billion and $185 billion for 2026. Most of this spending is marked for building AI and cloud infrastructure, including data centers, chips and servers for Gemini and cloud growth. Although Alphabet generates considerable cash flow ($164.71 billion on a trailing 12-month basis at the end of fourth-quarter 2025), this steep increase in capital expenditure is expected to squeeze free cash flow ($73.27 billion on a trailing 12-month basis at the end of fourth-quarter 2025).
In the trailing 12-month period, GOOGL shares have returned 89.8%, outperforming Apple, Amazon and Microsoft, shares of which have appreciated 18.9%, 9.8% and 4.3%, respectively.
GOOGL Stock’s Performance
Image Source: Zacks Investment Research
GOOGL Stock: Buy, Sell or Hold?
Alphabet’s growing AI-powered search capabilities and significant investments in cloud computing bode well for its prospects next year. However, capacity constraints, despite the improving pace of server deployments and data center construction, are expected to hurt Alphabet’s prospects in 2026. This, along with higher depreciation expenses and related data center operations costs, including energy, is expected to hurt profitability. Higher sales and marketing expenses are expected to keep the margins under pressure. These factors, along with GOOGL’s premium valuation, are concerning for investors in the near term.
Alphabet currently has a Zacks Rank #3 (Hold), suggesting that investors should wait for a more favorable point to accumulate the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
Apple Inc. (AAPL) : Free Stock Analysis Report
Microsoft Corporation (MSFT) : Free Stock Analysis Report
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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