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Why Is Alphabet Stock So Cheap?

The market might be discounting its advertising business.

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Andrew Willis: Keeping up with our regular cloud storage payments has probably become as important as maintaining our mortgages or rent payments. Year to date, however, investors have been neglecting to pay for Alphabet stock (GOOG)--the parent company of search engine Google--all while the company racks up gains in the fast-growing public cloud market.

We believe Google will continue to gain traction in the cloud market, with annual revenue growth expected to be 27% until 2026. Meanwhile, revenue from Google Play Stores, sales of hardware products, and non-ad YouTube segments is expected to be flat for the rest of the year. Is that why the stock's so cheap?

The market might be discounting Alphabet's advertising business, which makes up 70% of revenue. But when it's expected to grow 15% this year, to a quarter-trillion by 2023? We can't expect a typically cyclical tech stock.

For Morningstar, I’m Andrew Willis.

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Andrew Willis does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.