Alphabet and Amazon's Low P/E Ratio Not Always What it Seems

Alphabet and Amazon's price-to-earnings (P/E) ratios make them seem cheaper than the S&P 500. However, this is partly due to one-time effects skewing their earnings.

Both companies have extensive investment portfolios, with significant gains on Anthropic, an AI firm they're major investors in. As a result, when looking at their P/E ratios, it appears Alphabet and Amazon are undervalued compared to the broader market.

However, using 2027 earnings projections provides a more accurate picture of these stocks' value. When this method is applied, both Amazon and Alphabet trade at reasonable levels, with their growth rates accelerating due to massive investments in AI research and cloud computing.