Alphabet Inc. (NASDAQ:GOOGL) has shown strong fundamentals, impressive growth in its Google Cloud division, and robust quarterly results, but despite these strengths, the stock remains undervalued in relation to its growth potential. As Alphabet continues to face potential risks, including antitrust issues and increasing competition in the tech space, it’s critical to assess the company's position within the broader market. Is now the right time to buy GOOGL stock, or should investors wait for more clarity?
Technicals Indicate a Bullish Trend for NASDAQ:GOOGL
Alphabet's technical indicators suggest that the stock is entering a new uptrend after a breakout from a downtrend that started in February. Following a bullish reversal in early April, GOOGL has shown signs of bullish momentum, confirmed by technical patterns such as a bullish engulfing pattern. Key support levels are now at $160, $151, and $144, with resistance levels at $171 and the mid-$180s range.
The 50-day Simple Moving Average (SMA) had a "death cross" with the 200-day SMA earlier in April, a bearish indicator; however, GOOGL recently broke back above the 50-day SMA, which is encouraging for bulls. The Exponential Moving Averages (EMA) also show that bullish momentum has returned, with the 9-day EMA breaking above the 21-day EMA. Additionally, the Relative Strength Index (RSI) is sitting at 55.62, showing that bullish control is in play.
Furthermore, GOOGL has successfully broken above the Bollinger Bands midline and touched the upper band, signaling the continuation of the uptrend, though some consolidation may occur before further price increases. The MACD indicator, which recently showed a bullish crossover, suggests that the stock's momentum will continue to build. Given these factors, GOOGL seems to be on a solid upward trajectory for the near term.
Fundamentals Support Strong Growth Despite Risks
Alphabet's Q1 2025 earnings report, released in late April, showed impressive results. The company generated $90.2 billion in revenue, marking a 12% year-on-year growth, or 14% in constant currency, beating expectations by $1.08 billion. The Google Cloud division reported robust growth, with a 28% increase in revenue, totaling $12.3 billion. This performance highlights Alphabet's ability to diversify its revenue streams beyond search and ads.
EPS grew by 49%, reaching $2.81, comfortably surpassing expectations by $0.80. Alphabet's operating margin also increased by 2% to 34%, reflecting the company's improved efficiency and cost control. These strong financials, combined with the growth in the AI-driven Google Cloud segment, point to a company that continues to adapt and innovate despite the challenges it faces.
However, despite these impressive earnings, GOOGL's P/S (price-to-sales) ratio of 5.633 and P/E (price-to-earnings) ratio of 18.27 suggest that the stock is undervalued. These multiples have contracted significantly, despite Alphabet's strong revenue growth and increasing profitability. The disconnect between the stock price and the company's fundamentals suggests that the market may be underestimating Alphabet’s future growth potential.
Antitrust Risks and Legal Challenges: Potential Headwinds for Alphabet
One of the major risks facing GOOGL is the ongoing antitrust case against the company, spearheaded by the U.S. Department of Justice. The government’s investigation could result in forced divestitures, including the sale of Alphabet's Chrome business. While these risks could temporarily disrupt Alphabet’s business, they may also lead to positive outcomes, such as the potential spin-off of certain segments, which could unlock significant shareholder value.
While some investors fear that Alphabet could lose its dominance in search due to the rise of AI competitors like ChatGPT, Alphabet has proven its resilience. The launch of Gemini 2.5, Alphabet’s latest AI model, has helped maintain its competitive edge, and GOOGL continues to process over 5 trillion searches per year, showing consistent growth in its core search business.
Cloud Growth: A Key Driver for Alphabet’s Future
Alphabet’s cloud business is growing rapidly and is poised to become one of the company’s key drivers of future growth. Google Cloud grew 28% year-on-year, with annualized revenues nearing $50 billion. This growth is fueled by the success of Google Cloud Platform (GCP), which is leveraging AI infrastructure and generative AI solutions. As the cloud market continues to expand, Alphabet’s investments in this sector should pay off, positioning the company for sustained growth.
However, Alphabet’s heavy capital expenditures (capex) could create pressure on the company’s margins if not managed carefully. The company’s quarterly capex growth has accelerated, rising 43% YoY, with total annualized capex exceeding $75 billion. While these investments are necessary for Alphabet's future success, they also place significant strain on its cash flow and free cash flow (FCF).
Despite these challenges, GOOGL has continued to generate strong FCF, reporting $19 billion in FCF for Q1 2025, a 13% YoY growth. This robust cash flow generation provides Alphabet with the resources to continue funding its growth initiatives, share buybacks, and dividend payments. The company has also announced a $70 billion share buyback program, further demonstrating management’s commitment to returning value to shareholders.
Future Catalysts: What’s Next for NASDAQ:GOOGL?
Alphabet’s strategic investments in emerging technologies such as Waymo (self-driving cars), DeepMind (AI research), and quantum computing position the company for long-term growth. Analysts suggest that if Waymo captures just one-third of the autonomous rides market, it could generate $300 billion in annual revenue, adding trillions of dollars to Alphabet’s market cap.
The company’s investments in AI and cloud computing, combined with its strong cash flow, create an ideal environment for future growth. However, potential risks such as a global recession, antitrust challenges, and competitive pressures could hinder Alphabet’s progress. Despite these risks, the stock’s current undervaluation, strong fundamentals, and significant growth potential make GOOGL a compelling investment at its current price levels.
Conclusion
Given the bullish technical indicators, strong Q1 performance, continued growth in Google Cloud, and the potential upside from Alphabet’s investments in AI and autonomous vehicles, NASDAQ:GOOGL appears to be a solid long-term investment. While the stock faces risks, including antitrust challenges and potential macroeconomic headwinds, the current market price seems disconnected from its true value. Investors looking for exposure to a diversified tech company with robust future growth prospects should consider GOOGL as a strong buy at these levels.
