The Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG) share price is at an all-time high. In fact, the stock has essentially doubled in value over the seven months. As I opened my position in May last year, I’m obviously pretty chuffed about that.
The big question is how much further can this bull run go?
Let’s have a look.
Wall Street gets more bullish
If you follow my writing, you’ll know I don’t always trust institutional analysts. There are some really great ones, and some guys who are really stealing a living.
I say that because I find the consensus opinion on Alphabet really interesting. The consensus was Buy until November 2025 at which point it became a Strong Buy.
To me, however, it was clear that the stock was vastly undervalued relative to its growth potential earlier in the year. Now, in my opinion, there’s much less margin of safety.
Margin of safety diminishes
The margin of safety is the principle of investing with a significant discount between a company’s market price and its intrinsic value.
This gap provides protection against errors in analysis, adverse developments, and market volatility, helping investors minimise the risk of permanent capital loss while preserving long-term returns.
It’s something very successful investors like Warren Buffett have talked about extensively. How the investor defines fair value is up to them, of course.
For me, it’s all about relative valuation, growth, profitability, and the balance sheet.
Today, Alphabet trades around 30.6 times forward earnings — that’s about 30% above the IT sector average and 88% above the communications sector average. The price-to-earnings-to-growth (PEG) ratio is two — 20% above the IT sector average and 57% above the communications sector average.
These metrics suggest an overvaluation. So, why are analysts so bullish?
Well, it’s a quality company with great long-term drivers, including in emerging sectors like self-driving cars and quantum computing.
The market also got quite excited about the idea that Alphabet could sell its ASICs (TPUs) — an application-specific chip — becoming an Nvidia competitor in hardware.
The bottom line
For me, there is limited near-term growth potential. Search — and other Google Services — and Cloud are strong businesses but the stock is priced for these segments to do well.
So, what could that mean for a £20,000 investment in Alphabet this year?
Well, momentum is really hard to forecast and earnings beats could certainly send the stock higher. What’s more, we could have some more great news about the Willow quantum chip or the self-driving cars.
However, the key word here is ‘could’. Unless you’re working at Alphabet, you’re very unlikely to know whether these things could happen before the rest of the market.
Stripping it down to the valuation, I’m suggest Alphabet would do well to maintain its current price. But I do expect more strong operational performance. Putting them together, I’d only expect a modest return on £20,000 over the next year. Maybe £21-22k.
However, I still think the stock is worth considering for the long run. It’s a tech giant with lots of strings to its bow.
