Alphabet (NASDAQ: GOOGL), Google's parent company, has had a challenging start to the year, with its stock down nearly 10% YTD as of Tuesday’s close.
This decline follows a broader trend of U.S. equities correcting in the first quarter as capital has shifted away from high-growth technology stocks into safe-haven assets like gold and international markets, including China, Europe, and emerging economies.
With GOOGL now trading at more attractive valuations and recently confirming a short-term bottom, is the stock too cheap to ignore? Let’s analyze its valuation, the challenges weighing on its performance, and its potential for a rebound.
Is AI a Major Threat to Google’s Search Dominance?
Google’s search business, the foundation of its valuation, faces an unprecedented challenge from AI-driven competitors like OpenAI’s ChatGPT and xAI’s Grok, to name a couple. These AI tools offer direct, synthesized answers, reducing users' reliance on traditional search navigation.
Although ChatGPT and Grok have gained traction, Google still dominates with an estimated 88% market share in U.S. search. Search and other revenue climbed to $54 billion in Q4 2024, up 12.5% year-over-year, supported by Google’s very own AI Overviews feature. However, integrating AI into search has drawbacks, with reports indicating an 8.9% decline in website clicks due to AI Overviews.
This competitive pressure has helped fuel bearish sentiment in 2025 as investors question whether Google can sustain its ad-driven revenue model amid rising AI competition.
Google’s AI Response
Google is not standing still while AI threatens its dominance. The company has aggressively expanded its AI initiatives, launching the Gemini AI model and enhancing its search capabilities with AI Overviews. Now live in over 100 countries, AI Overviews aims to keep users engaged within Google’s ecosystem by offering AI-generated summaries alongside traditional search results.
CEO Sundar Pichai has emphasized that these AI-driven enhancements have increased search engagement rather than cannibalizing it. Early data suggests that search volume has remained strong in areas where AI Overviews are active, reinforcing Google’s ability to adapt to evolving user behavior.
Is GOOGL Too Cheap to Ignore?
[content-module:Forecast|NASDAQ: GOOGL]The key question is whether Alphabet’s earnings growth can justify its current valuation. In its February 2025 Q4 earnings report, the company unveiled an ambitious $75 billion capital spending plan, up 43% from 2024, to strengthen its AI and cloud infrastructure. Despite a slight revenue miss of $96.47 billion versus $96.56 billion expected, Alphabet’s core businesses showed resilience.
Search revenue grew 12.5% to $54 billion, YouTube ad revenue climbed to $10.47 billion, and Google Cloud revenue rose 30% to $11.96 billion. However, growth was constrained by capacity limits, which Alphabet aims to address with its increased investment.
While Alphabet did not provide specific revenue forecasts, some analysts project full-year EPS growth of 14-16%. With a current P/E of 21 and a forward P/E of 16.69, Alphabet is trading at a historically cheap valuation, especially given its significant AI investments, and if the company can achieve analyst EPS estimates for the full year 2025.
From a technical perspective, GOOGL recently found support after dipping below $160 and has since reclaimed $170, along with its declining 20-day SMA as of Tuesday’s close. This suggests a short-term bottom may be in place, setting up a potential upside for the stock if market sentiment improves.
The Bottom Line on GOOGL Stock
Alphabet’s recent pullback has been driven by broader market weakness and concerns over AI competition. However, with strong financials and fundamentals, continued search dominance, and aggressive AI investments, the stock may be too cheap to ignore.
If Alphabet’s AI initiatives pay off and earnings growth continues, its current valuation presents an attractive opportunity for long-term investors.
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