Alphabet: the market’s most undervalued Mag 7 company

While Microsoft (NASDAQ: MSFT) and NVIDIA (NYSE: NVDA) have seen stock surges on AI momentum, Alphabet (NYSE: GOOG) remains an outlier.

Despite owning its own AI infrastructure and delivering strong double-digit growth across Search, YouTube, and Cloud, the market hasn’t fully priced in Alphabet's AI and tech potential. Alphabet remains significantly underappreciated where its valuation doesn’t reflect its long-term potential.

Investors are starting to see Google Cloud’s AI differentiation as a growing challenge to Amazon AWS and Microsoft Azure’s dominance.

Alphabet Delivers—but the Market Isn’t Pricing It In

Alphabet delivered another amazing quarter. In Q2 2025 alone, consolidated revenues increased 14% YoY, EPS increased 22% and net income increased 19%. Its trailing 12-month free cash flow stands at $66.7 billion. Additionally, Google Search, YouTube ads, Google subscriptions, platforms, and devices, and Google Cloud all delivered double-digit growth in Q2 2025. 

Yet despite this strong performance, Alphabet trades at just a P/E of 20.7, making it the cheapest stock in the Magnificent Seven (Mag 7).

Google Search Isn’t Dead. It’s Evolving with AI.

Contrary to the market’s prediction that AI will decrease engagement with Google Search, Search experienced continued strong growth, boosted by the engagement with features like AI Overviews.

As CEO Sundar Pichai commented in the Q2 2025 Earnings call:

“AI is powering an expansion in how people are searching... unlocking completely new kinds of questions.”

In Q1 2025, Search had 1.5 billion users per month, and revenue grew 11.7% YoY, a catalyst driven by AI that created new user behaviours. AI Overviews, now powered by Gemini 2.5, are driving over 10% more queries globally and monetising at the same rate as traditional search ads. Gemini has over 100 million monthly users. Visual search is growing rapidly, with Google Lens queries up 70% YoY and Circle to Search live on 300 million Android devices.  

YouTube: Outpacing Netflix Yet Under-Valued

YouTube continues to be the most-watched streaming platform in the US, with 12.3% of total TV time in March 2025, a jump ahead of Netflix’s 7%. 

YouTube Shorts delivers 200 billion daily views. AI tools are boosting creator productivity, where 70 million videos were generated using Veo 3 since May. Google is adding generative features, dubbing, and editing tools natively into YouTube.

Subscription revenue (Premium, Music, YouTube TV) continues to grow in double digits. Morgan Stanley predicts a 30.2% YoY growth for 2025 and an 18.6% YoY growth for 2026. However, the bank values YouTube at $476B under an EV/Sales multiple of 6.7x, which remains significantly underpriced than Netflix’s market cap of $501B priced under EV/Sales multiple of 12.18.

Youtube is estimated to deliver revenue of $70.7bn in 2026, well above Netflix of $45 billion. If spun off, YouTube could command a $720 billion valuation, far above Netflix’s current $556 billion market cap.

The Agentic AI Bet – And how is Alphabet winning this

While the market remains focused on models and chips, Google is quietly building its market share in agentic AI. This next wave of AI capability could be the most undervalued part of Alphabet’s portfolio.

Agentic AI are intelligent systems that can autonomously plan, execute, and adapt across multi-step tasks. The system operates like a virtual assistant, handling complex goals such as researching, booking appointments, or automating workflows. These agents represent the next evolution of AI, and Google expects 2026 to be a breakout year for adoption as infrastructure matures and latency improves.

In Search, US users can use AI-powered calling to contact local businesses, and Google features like AI Mode and Circle to Search (which resemble agent-like behaviors) to follow up on previous interactions.

For corporate clients, Google Cloud’s new AgentSpace platform is powering agentic workflows for companies like BBVA, Mattel, and Target in tasks such as automating customer feedback, software testing and cybersecurity. Google’s open-source Agent Development Kit has already crossed one million downloads. Internally, Google are using agentic AI to assist in coding workflows. CEO Sundar Pichai expects agentic workflows are “at the frontier,” and 2026 to be the breakout year for this technology. 

Waymo, Alphabet’s autonomous driving unit, now operates in 10 cities (including New York and Atlanta), with 100 million autonomous miles under its belt. It raised $5.6B in late 2023 at a $45B valuation, however this is not yet reflected in Alphabet’s current valuation.

Google Cloud and AI: Accelerating Growth

Google Cloud revenue jumped 32% YoY to $13.6B, reaching a $50B+ run-rate. The segment’s operating margin more than doubled to 20.7%. This is followed by an increasing enterprise demand for AI, where 85,000+ enterprise clients use Gemini (including Salesforce, BBVA, and Target). Google Cloud are experiencing growth in large deals, with $250M+ contracts doubling YoY. Cloud backlog surged to $106 billion, which is up 38% YoY.

Alphabet also raised its capex guidance to $85B (from $75B), driven by AI infrastructure build-out. Google Cloud now supports models from OpenAI, showcasing its importance as a support provider in the Google AI ecosystem.

On the consumer side, Google One’s AI Pro and Ultra plans are attracting consumer adoption since Gemini 2.5’s release, expanding Alphabet’s subscription ecosystem.

Alphabet stands out in the AI race with an end-to-end strategy. Its Gemini 2.5 models are among the best in the industry and are already being used by over 9 million developers. Google also operates one of the most advanced AI infrastructures, with the widest range of GPUs and TPUs. Gemini is now built into key products like Search, Workspace, Chrome, and Android. Altogether, Google’s AI tools reach over 450 million monthly active users.

Why It’s Mispriced

Despite outperforming across its product lines, Alphabet is trading at a discount compared to peers like Microsoft, Amazon, and NVIDIA. Its diversified revenue streams, infrastructure advantage, and ecosystem leverage are delivering superior earnings momentum, yet are undervalued by the market.

And it becomes clear that Alphabet may be the most underappreciated AI winner in the market.