Is Alphabet Stock Priced Right Against Its Peers?
Measured against five other large companies: Microsoft, Amazon, Meta Platforms, Apple, and Netflix, Alphabet (GOOGL) looks like an anomaly. In a group of this caliber, investors typically expect the fastest-growing businesses to command the highest valuations. Yet Alphabet carries the lowest P/E of the six, even though its sales are growing second fastest. So how much less are you paying for Alphabet than for its peers?
Alphabet Trades At Less Than Half Of Apple’s P/E
Investors currently pay 17.3 times trailing earnings for Alphabet and 38.7 times for Apple. In practical terms, purchasing one dollar of Apple’s yearly profit costs more than twice as much as the equivalent profit from Alphabet. The underlying financial results do not readily explain this valuation gap. Alphabet’s sales grew 20.1% over the last twelve months, compared with 14.2% for Apple. Furthermore, despite Apple operating as a hardware maker, both companies convert nearly the same share of sales into operating profit: 33.1% at Alphabet and 33.2% at Apple.
Among the six companies, only Meta Platforms grew faster. Meta also costs more, trading at 26.9 times earnings. Investors certainly have not ignored Alphabet stock, however. The shares rose 42.1% over the past twelve months, marking the largest gain in the group.
| GOOGL | MSFT | AMZN | META | AAPL | NFLX | |
|---|---|---|---|---|---|---|
| Market Cap ($ Bil) | 4,232.1 | 3,880.9 | 2,736.0 | 1,833.2 | 4,989.2 | 299.8 |
| PE Ratio (LTM) | 17.3 | 29.0 | 20.2 | 26.9 | 38.7 | 22.0 |
| LTM Revenue Growth | 20.1% | 17.8% | 15.8% | 27.7% | 14.2% | 16.0% |
| LTM Operating Margin | 33.1% | 46.8% | 12.1% | 38.1% | 33.2% | 29.7% |
| 12M Stock Return | 42.1% | 0.6% | 14.6% | 1.4% | 33.2% | -39.9% |
What Is Alphabet Selling More Of?
The primary driver is cloud computing. Revenue at Google Cloud rose 82% in the second quarter of 2026, easily outpacing the 17% revenue growth from Google Search and other advertising. On the second-quarter call, management attributed the cloud growth to business demand for its AI products. The cloud division remains the smaller segment overall, however, bringing in 15% of Alphabet’s revenue in fiscal 2025.
Cloud customers are also signing up for significantly more than they have received so far. The backlog at Google Cloud, representing revenue under contract that Alphabet has not yet booked, reached $514 billion in the second quarter. Management expects to book just over 50% of it as revenue within 24 months.
Is There A Catch In Alphabet’s Low P/E?
Yes, and part of the issue lies directly in the profit itself. Alphabet’s net margin jumped to 55% over the last twelve months, up from 31% a year earlier. Its operating margin barely moved over the same stretch, edging from 33% to 33.1%, which means much of that jump appears to come from outside ads and cloud. Management noted on the second-quarter call that other income rose mainly on unrealized gains on shares Alphabet owns. Because a P/E metric counts those paper gains as earnings, buyers are likely paying more than 17.3 times for the profit from ads and cloud alone.
Expanding this business is also expensive. Management raised its 2026 capital spending guide to $195 billion to $205 billion, up from $180 billion to $190 billion. Free cash flow was negative in the second quarter, and management expects higher depreciation to weigh on profit. Even so, operating income grew 30% in the second quarter and the operating margin was 34%.
Ultimately, part of the low P/E ratio appears to stem from paper gains. For the rest of the valuation gap, the low price appears to assume that Alphabet will give up profit to pay for its data centers. It has not done so yet. Alphabet is expected to report its third quarter in October. If the company posts an operating margin clearly below the 34% of the second quarter, it would be the first sign that data center costs are catching up with Alphabet’s profit.
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