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Shares in Google and YouTube owner Alphabet (NASDAQ: GOOG) look cheap right now. Currently, they’re trading on a price-to-earnings (P/E) ratio of just 17 (the lowest P/E ratio among the ‘Mag 7’). Could this be the best growth stock to consider buying right now? Let’s discuss.
A high-quality company with multiple growth drivers
I’ve always thought there’s a lot to like about Alphabet from an investment perspective. For starters, the company has multiple revenue drivers. Today, Alphabet generates revenues from Google search advertising, YouTube advertising, Google services (eg Gmail, Maps, etc), cloud computing, computing devices, and self-driving cars (Waymo).
Secondly, several of these business areas are growing rapidly. Cloud computing revenues, for example, rose 28% year on year to $12.3bn in Q1 2025. I’m excited about the long-term potential in this area of the business. Looking ahead, the cloud computing industry is forecast to grow by around 10% a year over the next decade.
I’m also excited about YouTube’s long-term growth potential. In my view, this is the best entertainment platform on the planet.
One other thing worth mentioning is the Alphabet’s financials. This company generates a ton of cash flow, has a rock-solid balance sheet, pays a small dividend, and does share buybacks, so it’s a high-quality company.
What are investors worried about?
Of course, when a stock’s trading cheaply, we have to ask why. What is it that’s spooking the market and preventing the stock from commanding a valuation that’s in line with its potential?
In Alphabet’s case, I can see several major risks. The big one is the emergence of generative artificial intelligence (AI) apps like ChatGPT and Perplexity.
For 20 years, Google basically had a monopoly on search. If you wanted information, you nearly always went to Google. The landscape is now changing rapidly however. Today, if you want an answer to a question, you could potentially obtain it from one of many generative AI apps.
Now, this doesn’t necessarily mean that Google search is dead. And in Q1, Google’s search revenues remained robust, coming in at $50.7bn (up 10% year on year). It’s worth noting here that the company’s having a lot of success with its ‘AI Overviews’ feature (which now has 1.5bn users a month). But this issue does add some uncertainty to the long-term investment case.
Another risk is a global economic downturn. Today, the bulk of Alphabet’s revenues still come from digital advertising. And in a recession, businesses tend to rein in their advertising spending. So growth potentially could slow in the months ahead.
Note that in recent years a lot of Google’s digital advertising revenues have come from the retail (particularly Chinese e-commerce), travel, and financial industries. All three of these could reduce advertising spending in a recession.
One other risk to consider is regulatory intervention/fines. This company is regularly fined by regulators for its dominance and there’s often talk of a potential breaking up of the company.
My view
Given these risks, the outlook for the company isn’t as clear as it once was. There’s some uncertainty. That said, I believe a lot of risk is baked into the share price at today’s valuation. At current levels, I like the set-up and I do think this could be — if not the best — one of the best growth stocks to consider right now.
