(Bloomberg) -- Despite being targeted by Beijing in retaliation to US trade tariffs, Alphabet Inc.’s durable growth and attractive valuation may offer insulation from all the geopolitical uncertainty.
China on Tuesday announced a probe of Alphabet’s Google for alleged antitrust violations. Given the firm’s search services have been unavailable there since 2010, the stock gained 1.5%, rising ahead of results due after the close.
While the Google parent has been trading near record levels, analysts say it still stands out as a bargain, especially among megacap tech firms at the heart of artificial intelligence — the trade that has lifted markets for two years.
“Alphabet is less susceptible to tariff risk than the more hardware-focused tech names, but it also has insulation from how strong its cloud and ad markets are,” said Dan Eye, chief investment officer at Fort Pitt Capital Group in comments made before China announced retaliatory moves. Eye said Alphabet was “easily” his favorite stock among the Magnificent 7. The valuation and earnings growth make for “a really attractive combination.”
After President Donald Trump agreed to delay 25% tariffs on Canada and Mexico for a month, China announced it would target a handful of American firms and put levies on some US goods — moves that were seen to be relatively restrained.
Bloomberg Intelligence analysts Robert Lea and Jasmine Lyu noted that the focus of China’s investigation is likely on “the market dominance of Google’s Android mobile phone operating system in China’s smartphone sector,” citing IDC data showing that approximately 70% of smartphones sold in China were Android-based in 2024.
While the back and forth speaks to the level of geopolitical uncertainty investors face in coming months, markets are looking to the search giant’s results to keep the rally in Big Tech stocks going, after last week’s earnings reports assuaged concerns.
The stock climbed 7.8% in January, hitting record levels and building on last year’s gain of more than 35%. It has outperformed the Nasdaq 100 Index since the start of 2024.
Despite that strength, Alphabet is the cheapest stock in the Magnificent Seven group of tech companies, trading at less than 22 times estimated earnings, a discount to the Nasdaq 100. The lower valuation partly reflects concerns over competition in AI and heightened antitrust pressure, although the outlook of the latter is unclear under the Trump administration.
Alphabet’s revenue growth is expected to accelerate to a 17.8% pace next year, up from 15% in 2024, according to data compiled by Bloomberg. Net earnings are seen growing 12% in 2025 and maintaining double-digit pace.
Two of Alphabet’s core businesses received indirect positive signals last week. Results from Meta Platforms Inc. suggested the market for online advertising is strong, and while Microsoft Corp. painted more of a mixed picture with its cloud-computing business, that was due to growth not being quite as robust as expected as it struggles to handle demand.
“Alphabet is still mostly driven by search advertising and the cloud, and since Meta gave a really strong read on the ad market, it seems safe to think we’ll also see that here,” said Thomas Martin, senior portfolio manager at Globalt Investments.
More than half the company’s 2024 revenue came from its Google Search & Other division, according to data compiled by Bloomberg. An additional 12.4% was derived from Google Cloud. However, Alphabet has a number of other businesses that Wall Street sees as sources of significant value.
Needham calculated that YouTube would be valued at $500 billion as a standalone business, while D.A. Davidson wrote that a company comprised of Alphabet’s DeepMind AI lab and its Tensor Processing Units chips could be worth as much as $700 billion. Alphabet’s self-driving unit Waymo — which is reportedly testing its vehicles in 10 new cities this year — was valued at more than $45 billion in October, and the shares were recently supported by a breakthrough in quantum computing.
High-margin businesses like cloud and YouTube would act as a “shock absorber” against volatility, said Brian Mulberry, client portfolio manager at Zacks Investment Management.
“If there was any kind of disappointment in future cost structures like tariffs, they can defeat that.”
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--With assistance from Carmen Reinicke and Subrat Patnaik.
