Prediction: Alphabet's Stock Will Deliver Monster Performance Over the Next 2 Years

Despite posting consistently solid results, the market doesn't respect Alphabet's current out of fear of what could happen to it

The primary question revolves around how Alphabet's legacy (Google ) will fare with the rise of generative AI

Investors are assuming that Google revenue will tumble, taking Alphabet's stock with it

However, that hasn't happened, and I doubt it will

I think Alphabet can der holders monster returns over the next two years through a combination of a few factors

Image source: Getty Images

Alphabet's stock is far cheaper than its peers Alphabet trades at a significant discount to other members of the "Magnificent Seven" cohort on a forward price-to-earnings (P/E) basis (Tesla has been removed from this chart because it trades for more than 160 times forward earnings)

GOOGL PE Ratio (Forward) data by YCharts Now, some stocks deserve a premium valuation, such as Nvidia, because it is growing its revenue and earnings at a rapid pace

However, I'd argue that other companies, Microsoft and Apple, don't deserve nearly the premium due to their growth rates

During the first quarter, Alphabet's growth rates, both in terms of revenue and earnings per (EPS), were quite strong (I omitted Nvidia from this chart due to its rapid growth skewing the data)

GOOGL Operating Revenue (Quarterly YoY Growth) data by YCharts Alphabet's revenue growth was in the middle of the pack, but much closer to second place than it was fourth place

Additionally, its EPS growth was the second-best of the five companies

If I presented you with this information alone, you'd assume that the multiple Alphabet assigned should be in the middle to high end of this cohort's range

So, what could happen if Alphabet receives a respectable multiple

Alphabet could vide monster gains if it rises to an average valuation The remaining four companies in the analysis (Microsoft, Apple, Meta Platforms, and Amazon) trade for an average of 31. 3 times forward earnings

This will be a tall task to accomplish, as the market appears to be convinced that Alphabet will face some challenges ahead

However, I think it's underestimating the staying power that Google has and how the average person will be perfectly content using Google's AI overviews for their AI model

This should keep Google at the top of its game and allow it to continue growing its revenue at a steady double-digit pace for the foreseeable future

It may take a few years for the market to come to its senses regarding Alphabet stock, but it will be a significant outperformer if it does

As another fun fact, if Alphabet were assigned a 31. 3 times forward earnings multiple at today's prices, it would be tied with Microsoft as the second-largest company in the world by market cap

Alphabet appears to be one of the top big companies to buy today

It's posting just as good as results (if not better) than its peers, yet trades at a huge discount

If Alphabet can continue posting strong results, the market will eventually come around to see that Alphabet is worthy of the same premium as its peers

By buying today, you can take advantage of a large discount and enjoy significant returns as Alphabet's valuation rises to match that of its peers

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

Keithen Drury has positions in Alphabet, Amazon, Meta Platforms, Nvidia, and Tesla

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

The Motley Fool has a disclosure policy.