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Alphabet Soars: From AI Laggard to Market Darling
8 Dec
Summary
- Alphabet stock surged 67% year-to-date, surpassing Microsoft in value.
- The company was undervalued, trading at a discount to the S&P 500.
- Fears that AI could erode Google Search's dominance were unfounded.
Alphabet has staged an extraordinary comeback, with its stock appreciating by 67% year-to-date as of early December 2025. This surge propelled the company past Microsoft, establishing it as the world's third-most valuable entity. This remarkable performance contrasts sharply with its position six months prior, when it traded down over 10% for the year and was mispriced by the market.
Wall Street's earlier assessment labeled Alphabet an "AI loser," overlooking its intrinsic value, substantial free cash flow, steady high-margin growth, and robust balance sheet. The company was even trading at a discount to the S&P 500, a stark deviation from efficient market theories. This undervaluation provided a significant opportunity for investors.
Despite its diversified business model, Alphabet's reliance on Google Search for over half its revenue presented a perceived vulnerability to large language models. However, fears that these AI advancements would erode Google Search's market share have proven unfounded, demonstrating the company's resilience and adaptability in the face of evolving technology.
