Google’s Unloved Stock Finally Gets Its Due

Google’s stock has been making waves, crossing the $3 trillion market cap threshold amid growing investor confidence. But here’s the bigger story: despite this rally, Google still trades at a significant discount to Big Tech peers like Amazon and Microsoft. The recent surge isn’t just market euphoria—it’s the beginning of what can be a 50% rally for GOOG stock as the market finally recognizes that Google deserves premium valuations and considers a rerating.

The narrative around Google and AI has completely flipped. Remember when everyone was panicking about AI cannibalizing Google Search? That fear is quickly becoming yesterday’s news. Google’s Gemini, particularly its viral “nano banana” feature, has driven the Gemini app to the #1 spot on Apple’s App Store in the U.S. This is proof that AI can actually enhance Google’s core offerings rather than destroy them.

The market is finally catching up to what we’ve been saying all along: treating AI as an existential threat to Google was always an overreaction. Instead, we’re seeing AI become a complementary force that strengthens Google’s ecosystem.

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The Valuation Gap

Here’s where things get interesting from a numbers perspective. Google has been the unloved child of Big Tech when it comes to valuation multiples, and the math tells a compelling story:

• Current Position: Trading at $250 per share, or 28x trailing earnings ($8.97). Just a month ago, Google was trading at only 22x trailing earnings before this recent 23% rally—impressive momentum for a $3 trillion company, but there’s more runway ahead.
• The Peer Comparison: Amazon and Microsoft trade at over 35x trailing earnings. If Google simply matched its peers at a 35x multiple, we’d be looking at over $370 per share—that’s nearly 50% upside potential over the next 15-18 months.

Does Google Deserve It?

The fundamentals say absolutely. Let’s break down the key metrics:

1. Revenue Growth: Google’s 3-year average of 10.2% trails Amazon (11.3%) and Microsoft (12.5%) only slightly
2. Profitability Powerhouse: Google’s 31.1% net income margin crushes Amazon’s 10.5% and isn’t far behind Microsoft’s 36.1%
3. Cash Generation: Google’s 36.0% operating cash flow margin doubles Amazon’s 18.1%, though Microsoft leads at 48.3%

Microsoft’s premium valuation is justified, but Google’s metrics aren’t far behind. Primarily, the lower multiple was historically due to regulatory overhang—but with that largely cleared, the rerating case has never been stronger. The recent rally from 22x to 28x earnings shows this rerating is already underway.

What Google Needs for Premium Valuations

For Google to command Amazon and Microsoft-level multiples (35x+), investors need to see these key factors:

1. AI Leadership Momentum: The cloud services market is growing rapidly with AI driving much of this growth, and Google needs to demonstrate it’s not just participating but leading in this space. The Gemini success is a good start, but sustained AI innovation will be crucial.
2. Diversification Beyond Search: Microsoft’s faster revenue growth (16% vs 11% for Amazon) commands premium valuations. Google needs to show that cloud, AI, and other ventures can drive growth independent of search dominance. See how Google’s revenue growth compares to that of its peers.
3. Regulatory Clarity: Alphabet shares popped 8% when investors celebrated minimal consequences from the antitrust case. Clear resolution of regulatory overhang has already started, but complete clarity will unlock further multiple expansion.
4. Capital Allocation Excellence: Premium multiples go to companies that deploy capital efficiently. Google’s massive cash pile needs to generate returns that justify investor confidence in management’s strategic vision. Check out how Google’s valuation compares with peers, including AMZN and MSFT.

Risk Factors That May Derail the Rerating

1. Competition in AI Search: While Google maintains 90% search market share, AI search represents a new battleground where competitive dynamics may shift rapidly. Microsoft, OpenAI, and other players are aggressively pursuing this space.
2. Antitrust Remedies Impact: The ruling mandates data sharing with competitors at marginal cost, potentially accelerating AI innovation while diluting Google’s market dominance. While Google avoided breakup, losing $26 billion search deals has the potential to impact predictability even if it might fuel AI growth. Related – Google Deal Intact, What Next For Apple’s $100 Bil Services Business?
3. Revenue Growth Deceleration: If Google can’t demonstrate that AI initiatives translate into accelerated revenue growth, investors might question whether the company deserves premium multiples during a period when valuations can matter more for large cap tech stocks.
4. Execution Risk on AI Strategy: The Gemini momentum is encouraging, but sustaining innovation leadership in a rapidly evolving AI landscape requires flawless execution. Any stumbles can quickly erode the premium valuation case.

Given these risks, investors might consider diversification strategies like the Trefis Reinforced Value (RV) Portfolio, which has outperformed its all-cap stocks benchmark (combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to produce strong returns for investors. The quarterly rebalanced mix of large-, mid- and small-cap RV Portfolio stocks provides a responsive way to make the most of upbeat market conditions while limiting losses when markets head south, as detailed in RV Portfolio performance metrics.

The Bottom Line

Google’s path to a 50% stock price appreciation isn’t just wishful thinking—it’s supported by a valuation gap that’s becoming increasingly hard to justify. The company has the right ingredients: dominant market position, improving AI narrative, regulatory clarity, and financial strength.

The key question isn’t whether Google deserves a higher multiple, but how quickly the market will recognize that the company has evolved beyond the “search disruption” and antitrust fears that kept its valuation suppressed. With AI proving to be a complement rather than a competitor to Google’s core business, we may be witnessing the early stages of a significant rerating.

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