Alphabet Valuation: Undervalued or Overpriced?

Alphabet's recent business activities have left some investors wondering if the tech giant is undervalued. In August, Alphabet made headlines for its US$25 billion bond sale and a rare quarter of negative free cash flow.

The company has been investing heavily in artificial intelligence (AI) and cloud services, which could potentially boost its revenue growth and profitability in the long run.

According to an analysis by Simply Wall St, Alphabet's AI push, Google Cloud backlog, and strong shareholder backing are among the key drivers of its stock price. However, bears point out that the company's negative free cash flow, heavy capital expenditures, and legal overhangs pose significant risks to its valuation.

A popular narrative pegs Alphabet's fair value at around $433 per share, which is 20% higher than its current market price of around $345.9. This view is based on the company's strong ad business, AI-driven cloud margins, and assumed durability of current profitability.