Alphabet (GOOGL) Stock: Is This $500B Drop a Golden Buying Opportunity?

• Alphabet (GOOG/GOOGL) has lost over $500 billion in market cap, dropping from $2.5 trillion to $2 trillion
• The stock trades at 18.6x forward earnings, making it the cheapest Magnificent Seven stock and below the S&P 500 average of 21.2x
• Alphabet plans approximately $75 billion in capital expenditures for 2025, largely focused on AI infrastructure and cloud computing
• Google Cloud is Alphabet’s fastest-growing business unit with 30% year-over-year revenue growth in Q4
• The Department of Justice continues to push for breaking up Alphabet, potentially forcing the sale of Google Chrome

Alphabet, Google’s parent company, has experienced a substantial market value decline in recent weeks. The tech giant has shed over $500 billion in market capitalization, bringing its valuation down from $2.5 trillion to $2 trillion.

This dramatic drop occurred during the latest tech sell-off, which has impacted numerous companies in the sector. Despite this significant decrease in value, many analysts question whether the sell-off is justified given Alphabet’s strong financial position.

Alphabet now stands as the most affordable stock in the Magnificent Seven group by a considerable margin. At 18.6 times forward earnings, it trades well below the S&P 500’s average of 21.2 times and far cheaper than its nearest Magnificent Seven competitor, Meta Platforms, which trades at 24.4 times forward earnings.

The company’s core business remains focused on advertising, which generates approximately three-quarters of its total revenue. This stable revenue stream provides a solid foundation for Alphabet’s operations and growth initiatives.

To maintain its competitive edge in the advertising sector, Alphabet has been developing various generative AI tools based on its proprietary Gemini model. These developments are a key driver behind the company’s substantial planned investments in AI infrastructure.

For 2025, Alphabet has informed investors to expect capital expenditures of around $75 billion. This represents the largest investment the company has ever made in its business infrastructure.

Cloud computing infrastructure

The massive spending is not solely directed toward AI. Alphabet is also heavily investing in building out its cloud computing infrastructure, which has become a crucial component of the AI arms race.

Google Cloud has established itself as a top-three player in the cloud computing market. It currently stands as Alphabet’s fastest-growing business unit, with revenue increasing by 30% year over year in the fourth quarter of 2024.

The cloud computing market continues to expand rapidly and remains in the early stages of development. Many companies prefer renting computing power rather than purchasing and maintaining expensive data centers equipped with advanced GPUs.

Adage Capital Management, a major investment firm specializing in managing assets for endowments and foundations, has taken a significant position in Alphabet. As of Q4 2024, the firm held an equity stake worth $1.03 billion in the company.

Alphabet’s recent financial performance has been strong. The company reported fourth-quarter earnings of $2.15 per share on revenue of $96.47 billion, exceeding analyst expectations of $2.13 per share and showing improvement from the previous year’s results of $1.64 per share on revenue of $86.3 billion.

CFO Anat Ashkenazi noted that a significant portion of the company’s investments has been directed toward technical infrastructure, particularly in expanding server and data center capabilities. CEO Sundar Pichai reinforced Alphabet’s commitment to innovation with the planned capital expenditures for 2025.

Technical Analysis

According to Trader Edge on X, price is currently finding support on a trendline going back to October 2023.  If price holds this trendline, it could push up to the resistance level at $182.  Failure to hold the trend, could see a drop to the next key support level at $150,

Ongoing regulatory challenges

Despite these positive developments, Alphabet faces ongoing regulatory challenges. The Department of Justice continues to push for breaking up the company, potentially forcing the sale of its Google Chrome browser.

This regulatory pressure began under the Biden administration and has continued under President Trump’s DOJ, showing rare bipartisan agreement on the issue. Alphabet is expected to fight this action through the courts, which could take considerable time to resolve.

Some analysts suggest that if Alphabet is broken up, it might actually be worth more as separate businesses rather than as one conglomerate, given the current undervaluation of its stock.

For the full fiscal year 2025, consensus forecasts suggest Alphabet will achieve earnings of $8.89 per share, reflecting a 10.57% annual growth. Revenue is expected to reach $334.55 billion, an increase of 13.36% compared to the prior year.