What Is Going On With Alphabet Stock?
Alphabet (GOOGL) stock costs 22% less than the median S&P 500 company, measured by price against the past year’s earnings. Alphabet’s revenue still grew 20.1% over the past year, against 8.3% for the median S&P 500 company. Investors usually pay more for faster growth. So is Alphabet stock a bargain, or is the low price a warning?
Alphabet Stock Looks Like A Bargain On Profit
Alphabet stock does look like a bargain on its profit figures. A P/E, or price-to-earnings ratio, is the price you pay for each dollar of yearly profit. Alphabet’s P/E is 17, against 21.7 for the median S&P 500 company.
Alphabet also keeps more of each sale than the median company does. Its operating margin, the share of sales left after running costs, was 33.1% over the past twelve months. The median S&P 500 company kept 18.6%. Alphabet’s P/E is still low for a company this profitable. Part of the reason is in its earnings.
Why Is Alphabet’s P/E So Low?
Alphabet’s P/E is low partly because its recent earnings include large paper gains. Its net margin, the share of sales kept as final profit, was 55% over the past twelve months. A year earlier it was 31%. Management said other income reached $98 billion in fiscal Q2 2026, mainly from unrealized gains on stocks it holds. Those paper gains count in earnings, so Alphabet’s P/E would be higher without them.
Alphabet’s operating business, which excludes those gains, has also improved over three years. Its operating margin is 33.1% over the past twelve months, up from 26% three years ago. Alphabet’s revenue grew faster over the past year than its 15.5% yearly average over three years. Alphabet’s weak spot is free cash flow, because the company is spending heavily on AI.
What Is Alphabet Getting For Its AI Spending?
So far, Alphabet is getting rapid growth in Google Cloud, which sells AI products and services to businesses. Google Cloud revenue grew 82% in fiscal Q2 2026. Its backlog, meaning signed contracts not yet counted as revenue, reached $514 billion. Management expects to count just over half of that backlog as revenue over the next 24 months.
The cost is heavy. Management raised its full-year 2026 forecast for capital spending to $195 billion to $205 billion. In fiscal Q2 2026, most of Alphabet’s capital spending went to servers, data centers and networking equipment. Free cash flow, the cash left after that spending, was negative $5.9 billion in fiscal Q2 2026. Management expects free cash flow to stay under pressure.
A buyer at this price is betting that Alphabet’s core business will eventually grow into a valuation made artificially cheap by one-off paper gains, rather than investing in a broken company that needs fixing. The bet also needs the AI spending to pay off. The results to watch are Google Cloud revenue and free cash flow in each quarterly report over those 24 months. If more than half the backlog becomes revenue on schedule and free cash flow recovers, that spending is starting to pay back. If the backlog turns into revenue slowly and free cash flow stays under pressure, the low price looks fair.
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