Is Alphabet's Stock Too Cheap to Ignore?

It's been an interesting year for the "Magnificent Seven" stocks, a name given to Alphabet (GOOG -0. 42%) (GOOGL -0. 33%), Apple, Microsoft, Nvidia, Amazon, Meta Platforms, and Tesla because of their size and influence on the market

Big stocks have been on a roller-coaster ride thanks to the Trump administration's revolving tariff plan, economic question marks, and investors shifting to defensive and dividend stocks to hedge against a potential downturn

Although Alphabet hasn't experienced the worst drop this year (that honor goes to Tesla and Apple), it appears to be the most undervalued of the bunch after its recent declines

It's now apaching "too cheap to ignore" territory

Just how cheap is Alphabet's stock

There are several metrics you can use to determine the relative value of a stock

In this case, I want to look at Alphabet's forward price-to-earnings ratio (P/E)

The higher the P/E ratio, the more expensive a stock is

The P/E ratio itself won't tell you if a stock is undervalued because what's considered "high" and "low" depends on the industry

However, comparing similar companies in the same industry can give you an idea, and when comparing Alphabet to other "Magnificent Seven" stocks, it appears undervalued

TSLA PE Ratio (Forward) data by YCharts

For some perspective, Alphabet's average P/E ratio over the past decade is around 29

Over the past five years, it's been around 25

Why is the market valuing Alphabet so low

Much of the skepticism surrounding Alphabet is related to the growth of tools and apps ChatGPT and TikTok and if this will affect how frequently people use Google

For quite some time, when you had a question you needed answered, you'd ask Google and be led to a website that ideally had the answer

Now, you can ask ChatGPT and receive an instant, descriptive answer, or type it into TikTok and watch a short, engaging on the topic

However, Alphabet has tried to address this issue by integrating its own AI tools into Google

Investors may be skeptical whether Google can maintain its dominance (or monetize its new AI Overviews feature), but those concerns seem overblown when considering how the market is currently valuing Alphabet

Its revenue growth is still in line with what it's been over the past couple of years

GOOGL Revenue (Quarterly YoY Growth) data by YCharts

Alphabet is more than just Google There's no question that Google is Alphabet's bread and butter, and that will ly be the case for the foreseeable future

However, other segments, such as YouTube, Google Cloud, and Waymo, have been growing impressively

Google Cloud, in particular, has the potential to become a major revenue source for Alphabet in the future

Google Cloud ly won't catch up to Amazon Web Services or Microsoft Azure in market anytime soon, but the cloud industry, in general, is growing so much that there's plenty of money to be made without being the dominant leader

There may be questions surrounding Alphabet, but it has a robust and is here to stay

At its current trading price, Alphabet stock is too cheap to ignore

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors

Stefon Walters has positions in Apple and Microsoft

The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla

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