Double digit growth at a discount, is this an overlooked mega cap?

Growth is rarely cheap, and at the big end of the US tech market, it is easy for investors to conclude that value is scarce.

The average P/E multiple of the Magnificent 7 is just under 30, almost 50% higher than the remaining stocks comprising the S&P 500. Tesla trades on an eye-watering 95x while market leader Nvidia trades on 47x.

Alphabet (Nasdaq: GOOGL) sits at the other end of the spectrum, trading at just 22x despite its monopoly in search and dominant businesses across video streaming (YouTube), Android and Cloud Services.

Alphabet shares have been held back by concerns over the impact that AI platforms, such as ChatGPT, will have on their search revenues and increased regulatory scrutiny.

We believe that these concerns are overblown and mask the quality of Alphabet’s business and market position.

A monopoly business with an advantage in artificial intelligence

Despite the hype around the rise of ChatGPT, Google remains the dominant search engine, accounting for 90% of global search and only down a few percentage points since the emergence of AI-driven platforms.

15% of daily Google searches are entirely new, highlighting how ingrained the platform is in our internet usage.

Alphabet has three core advantages that place it in a strong position in the move towards AI-fuelled searches.

1. According to industry leaderboards, Gemini, Google’s generative artificial intelligence chatbot, ranks ahead of OpenAI’s models for accuracy.
2. Google has an unrivalled pool of first-party data for training Gemini, meaning better models and answers.
3. Google is in a leading position to generate a return on investment in artificial intelligence. This market-leading position exists due to the existing ad tech and the network effect between advertisers and publishers, which is hard to replicate.

Multiple ways of winning

However, there is more to Alphabet than just the opportunity in search and artificial intelligence. YouTube is now the leading online streaming service in the US, with a 26% share of viewing time, with closest rival Netflix accounting for 18.5%.

The Android ecosystem continues to win global market shares. It has more users than Apple, and in the most recent quarter, Google’s cloud business grew faster than Amazon Web Services and Microsoft’s Azure.

Alphabet is trading on 17x 2026 earnings with a mid-teens growth outlook. In this video, we provide more detail on our thesis for Alphabet, which looks cheap versus the market and even its peers.