Alphabet's Stock Shaken by Increased AI Investment… Rated as 'The Most Undervalued Large-Cap AI Stock Right Now'

▲ Alphabet's Google (GOOG)/Source: X ©

Although Alphabet's stock has undergone an adjustment this year due to the burden of large-scale AI investments, an assessment has emerged that its current enterprise value is excessively low, considering its robust performance and cloud growth. Market analysis suggests that while investment costs are a short-term burden, in the long term, AI competitiveness could lead to a re-evaluation of its stock price.

According to cryptocurrency specialized media Watcher.Guru on July 4 (local time), Alphabet adjusted its 2026 capital expenditure (Capex) guidance upwards from the previous $175 billion-$185 billion to $180 billion-$190 billion. Furthermore, the announcement of a large-scale capital increase plan exceeding $80 billion raised concerns about the dilution of existing shareholders' stakes, and this burden was identified as a major reason for the recent stock price decline. However, Berkshire Hathaway's decision to make a $10 billion anchor investment alleviated some of these concerns.

In addition, the departure of key talent and regulatory risks also pressured investor sentiment. Noam Shazeer, VP of Engineering, moved to OpenAI, and John Jumper, VP of DeepMind, moved to Anthropic. Furthermore, a Swedish court ruled that Alphabet must compensate Klarna approximately $2 billion in connection with its search ranking operations, and an antitrust lawsuit regarding its search business in the U.S. is also ongoing.

However, performance remained robust. Alphabet's forward price-to-earnings (P/E) ratio was approximately 26.9x, and its net profit margin was about 38%. Free cash flow exceeded $38 billion, and Q1 2026 revenue increased by 22% year-over-year to $109.9 billion, marking the fastest growth in the last two years. Earnings per share (EPS) was $5.11, significantly exceeding market expectations. Contrary to concerns about the spread of generative AI, the search business maintained robust growth, with search and other segment revenues increasing by 19% year-over-year to $60.4 billion. CEO Sundar Pichai stated, "AI investments are driving growth across the business, and Gemini is currently processing over 16 billion tokens per minute."

The cloud business has also emerged as a key growth driver. Google Cloud revenue reached $20 billion, an increase of 63% year-over-year, recording a higher growth rate than Microsoft Azure and Amazon Web Services (AWS). Furthermore, through TPU collaboration with Blackstone and chip leasing agreements with Anthropic, it secured an order backlog of $460 billion, and its inclusion in the Dow Jones Industrial Average this year and the development of the Willow quantum chip were also evaluated as long-term competitive strengths. The media maintained that while large-scale AI investments and regulatory risks remain short-term burdens, considering its current valuation and performance, Alphabet is the most undervalued stock among large-cap AI stocks.

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