GOOGL is a high-conviction buy; considered a Hall of Fame company that is fairly valued or slightly undervalued.

At Goldman Sachs' technology conference in September, Alphabet informed investors that its artificial intelligence performance outperformed competitors by 2.7 times, with 80% better price performance in inference.

Alphabet has the complete technological infrastructure, from dedicated processing units to large language models and products that include more than one billion users across six different product lines .

This allows the company to spread the costs of investing in artificial intelligence across a broader customer base.

But does this make Alphabet stock a buying opportunity right now? Alphabet's revenues over the past twelve months have exceeded $446 billion.

At the same conference I mentioned earlier, the management team indicated that the company's artificial intelligence business had exceeded an annual operating rate of $100 billion.

The cumulative revenue of cloud-based artificial intelligence services is approximately $500 billion, with additional quarterly growth exceeding $50 billion. So, these are huge numbers, and Alphabet is beginning to reap the rewards of its massive investments in artificial intelligence.

Another sign that Alphabet is reaping the benefits of productivity gains is looking at revenue per employee. You can see that number nearly doubled over the past decade, with the pace of this improvement accelerating since 2024.

You can see that in 2024, Alphabet employees were earning about $1.65 million per employee.

This figure has risen to $2.154 million per employee. This represents a productivity gain of approximately 33% or 25% in just one and a half or two years. Now, it is reasonable to assume that the company will continue to make similar improvements.

Total revenue is increasing while the company maintains a relatively stable number of employees. The administration expected this to remain the case.

Alphabet's stock valuation has now reached levels approaching its highest point in two years. But, looking further back, Alphabet's stock is still trading at a relatively cheap valuation .

Based on the forward price-to-earnings ratio, the business is trading at 22.7, which is a reasonable price for a company whose revenues are accelerating by nearly 20% and improving its operating profit margins with strong competitive advantages.

Of course, business risks are currently higher than they have ever been . Well, it's probably not higher than it ever was . The early days were certainly more dangerous than they are now, but we can say that business risks are higher than they have been in recent years.

The massive investments in artificial intelligence, and by that I mean huge sums in the hundreds of billions of dollars, are likely to continue.

This involves enormous risks because it is unprecedented and falls into a new category. It is not an area where Alphabet has proven its dominance for many years as it has in its other categories.

So , of course, this is a more dangerous situation. Naturally, when risks increase, valuations decrease. All other factors being equal, investors prefer to get the same rate of return with less risk.

Therefore, if you increase the risk, investors will demand a higher rate of return and therefore a lower valuation. Therefore, today I also updated my discounted cash flow assessment for Alphabet, and interestingly, Alphabet is one of the few major technology companies .

Well, I shouldn't say few. They make up about half when considering the "Great Seven" who are expected to generate positive cash flow in 2026.

However, that is likely to turn negative next year. Therefore, I expect $7.8 billion in free cash flow for Alphabet this year, and a negative $32 billion next year . Then a return to positive cash flow in 2028 , and then reaping huge rewards in 2029 with $146 billion in free cash flow, as AI investments start to bear fruit and spending starts to decline.

I estimate that spending on artificial intelligence will peak sometime between 2027 and 2028 for major cloud computing companies such as Alphabet, Meta, Amazon and Microsoft.

Therefore, based on these estimates, I calculated the fair value of Alphabet stock at $338 , with a current market price of $342. Based on my discounted cash flow (DCF) model, the stock appears to be fairly valued.

Based on the forward price-to-earnings ratio, the stock appears to be undervalued . Overall, I would say that the company falls somewhere between fair pricing and slightly underpricing.

It is important to note that I classify Alphabet as one of the world's Hall of Fame companies.

When I designate a company as a "Hall of Fame" company, I believe that if it trades at a fair price, it is a good value and represents a buying opportunity for investors.

I think Alphabet is slightly undervalued and is a Hall of Fame company. Therefore, I think it's an excellent buying opportunity . I have rated Alphabet stock as a "buy".

I have owned Alphabet shares since 2020, and I have been recommending and rating Alphabet as a buy opportunity for almost a decade now. My level of confidence that Alphabet is a good buying opportunity for long-term investors is extremely high, the highest I have among my three conviction levels: high, medium, or low.

Of course, no business is guaranteed and there are risks associated with every investment, but I think the risk-to- reward ratio in this case is good.