Alphabet trades at Magnificent Seven's lowest valuation despite 24% revenue growth

Alphabet has become the most scrutinized yet underrated member of the Magnificent Seven. The company posted 24% revenue growth to nearly $120 billion in its most recent quarter, with operating income climbing 30% and Google Cloud revenue exploding 82%, making it the only member of the group to beat the market this year. Despite these results, the stock trades at roughly 17 times forward earnings—the lowest valuation in the entire Magnificent Seven.

The valuation discount reflects a two-year narrative that has proven wrong. Investors feared AI would destroy Google Search, turning Alphabet into a disrupted business despite its core strength. The opposite has occurred. Alphabet's Gemini models now handle 22 billion queries' worth of tokens per minute. The Gemini app has around 950 million monthly users, and nearly 90% of the Fortune 100 companies are using Alphabet's enterprise AI tools. Rather than being disrupted, Alphabet has emerged as one of AI's biggest winners, yet the market continues to price it as if the old threat remains.

Google Cloud illustrates the booming demand for AI infrastructure. Beyond that visible engine, Alphabet has built a second avenue for AI profits: it designs its own AI chips called TPUs and has started placing them directly in customers' data centers. This business is small today but is set to ramp significantly in 2027. Alphabet also holds hidden assets barely reflected in its headline multiple: a roughly 14% stake in the AI lab Anthropic (worth well over $100 billion), Waymo (positioned as the clear leader in self-driving robotaxis), YouTube (which analysts argue would be worth hundreds of billions as a standalone company), and DeepMind (one of the world's premier AI research labs). This collection of hidden assets makes Alphabet appear even cheaper than its stated valuation suggests—a calculation that recently prompted Berkshire Hathaway to build a stake worth tens of billions of dollars.

Risks exist. Alphabet's capital spending is exploding, with its 2026 budget raised to $200 billion and expectations that 2027 will climb even higher, pressuring near-term cash flow—a concern that drove the stock down after its latest earnings report. Regulators are circling Alphabet's search and advertising empire, and the long-term possibility that AI will reshape how people find information remains present. Still, Alphabet offers the growth profile of an AI winner combined with the valuation of a value stock, held down by fears that appear to be fading while its competitive strengths keep compounding.