We came across a bullish thesis on Alphabet Inc. (GOOGL) on Substack by Long-Term Pick. In this article, we will summarize the bulls’ thesis on GOOGL. Alphabet Inc. (GOOGL)’s share was trading at $183.61 as of Feb 12th. GOOGL’s trailing and forward P/E were 22.84 and 20.66 respectively according to Yahoo Finance.
Photo by Firmbee.com on Unsplash
Alphabet (GOOGL) remains significantly undervalued, with a fair price estimate of $218. The company is aggressively investing in AI and cloud infrastructure, with a planned $75 billion in CapEx for 2025, signaling confidence in sustained demand. The latest earnings report showcased strong performance, with revenue growing 12% year-over-year in Q4 2024, driven by Google Search and Cloud. Alphabet’s Cloud and YouTube businesses have reached a combined annual revenue run rate of $110 billion, demonstrating their growing importance within the company’s ecosystem. The launch of Gemini 2.0, Alphabet’s latest AI model, has further strengthened engagement across its platforms, enhancing both consumer and enterprise adoption. Google Cloud posted a remarkable 30% revenue increase, fueled by strong demand for AI-powered solutions and major deals exceeding $1 billion. Meanwhile, YouTube continues to dominate US streaming watch time, with a surge in ad revenue, particularly from election-related content.
However, there are headwinds to consider. Network advertising revenue declined by 4%, impacting Alphabet’s overall ad revenue growth. Cloud’s rapid expansion is constrained by capacity limitations, potentially capping short-term upside despite surging demand. Macroeconomic factors such as unfavorable foreign exchange rates and the absence of a leap year are expected to weigh on Q1 2025 revenue. Additionally, Alphabet faces challenges in its financial services vertical, particularly within the insurance segment, which may slow ad spending in this key market. Higher CapEx commitments, while strategically essential, will lead to increased depreciation costs, which could pressure near-term profitability.
Despite these challenges, Alphabet’s long-term growth trajectory remains compelling. The company’s continued AI advancements, dominant market position, and expanding cloud presence support its valuation potential. With a de-risked guidance and a fair price estimate reflecting significant upside, Alphabet presents an attractive opportunity for long-term investors. If AI and cloud monetization accelerate faster than expected, the stock could see a rapid rerating.
Alphabet Inc. (GOOGL) is on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 202 hedge fund portfolios held GOOGL at the end of the third quarter which was 216 in the previous quarter. While we acknowledge the risk and potential of GOOGL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than GOOGL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article was originally published at Insider Monkey.