This year has been rocky for the U.S. stock market. Between the Trump administration’s tariff plans (and subsequent backtracks), recession fears, and overall uncertainty, the stock market has been more volatile than usual.
Due to the uncertainty, investors have been heading toward value and dividend stocks, shifting away from the growth stocks that have been so popular in recent years. And while this is a strategic move to minimize risk, all isn’t lost with growth stocks.
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One growth stock in particular that I would consider is Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL). With a market cap of more than $2 trillion (as of June 9), Alphabet may not seem like your typical growth stock, but it checks the boxes. And right now, it’s a bargain worth considering.
Image source: Getty Images
It’s hard to overlook Alphabet’s cheap valuation
It’s been a tough start to the year for Alphabet, down more than 8% through June 9 and essentially flat over the past 12 months. Of course, this isn’t ideal for shareholders, but it does make the stock a lot more attractive for those looking to add shares or make their first purchase.
At around 18 times forward earnings, Alphabet’s stock is trading below the market (compared to the S&P 500) and is much cheaper than peers like Apple, Microsoft, Amazon, and Meta.
MSFT PE Ratio (Forward) data by YCharts
Trading at a relatively low value alone doesn’t make Alphabet’s stock a buy, but it does make the upside far outweigh the downside.
Alphabet will remain a cash cow for the foreseeable future
Alphabet has consistently been one of the top money-making businesses in the world. With subsidiaries that include Google, YouTube, Android, Waymo, and dozens of others, it’s easy to see why.
For perspective, Alphabet made $90.2 billion in revenue in the first quarter (up 12% year over year), more than companies like FedEx, Johnson & Johnson, and Taiwan Semiconductor Manufacturing Company have made in their last four quarters combined.
GOOGL Revenue (Quarterly) data by YCharts
Despite the billions Alphabet makes, it’s hard to ignore the concentration of the company’s revenue streams. Advertising, which includes Google Search and YouTube ads, accounted for more than 74% ($66.9 billion) of Alphabet’s total revenue. As advertising goes, so does Alphabet’s business.
That alone isn’t the problem, but some people fear that artificial intelligence (AI) tools could lead to reduced use of Google Search, potentially impacting its core business model. It may have some impact, but I don’t think it will be significant, especially as Google incorporates its own AI tools and finds ways to monetize them.
Google Cloud is still experiencing high growth
Although Google advertising is Alphabet’s bread and butter, the company’s main growth driver right now is Google Cloud. In Q1, Google Cloud made $12.3 billion in revenue, up 28% year over year.
Arguably more impressive than the revenue growth is the operating income growing 142% year over year to $2.2 billion. It takes a lot of scale for cloud computing businesses to be profitable because they have high fixed costs for things like data centers, servers, and other infrastructure. It appears that Google Cloud has reached that scale.
Google Cloud (12%) is firmly behind Amazon Web Services (30%) and Microsoft Azure (21%) in market share, and will likely remain in the third spot for the foreseeable future. However, it can be a productive business for Alphabet. Even in the third spot, the cloud pie is expected to grow large enough that Google Cloud could still make a meaningful contribution to Alphabet’s financials.
Although antitrust scrutiny and court rulings could reshape Alphabet’s business down the road, the company is well positioned to remain a dominant force in tech for years to come. You likely won’t regret investing $1,000 in the stock when you look back years from now.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Stefon Walters has positions in Apple and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, FedEx, Meta Platforms, Microsoft, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Johnson & Johnson and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
