Has one of those rare moments begun when it becomes statistically advantageous to take a position in Alphabet (NASDAQ:GOOG) stock? Ill start from a fundamental assumption: the P/E ratio at 18.11x and the forward P/E at 16.18x have reached their lowest levels since 2010. Then moving on to a technical consideration: on the weekly timeframe, GOOG stock has touched 30 points on the 14-period RSI oscillator (an indicator at the core of my long-term investment plan). Setting aside the tariff narrative for a moment, with the postponement announced by Trump, Id say its worth assessing whether this is a value trap or one of those rare opportunities.

Thesis

Given the contraction of P/E ratios to average levels (mean reversion), with earnings still projected to grow in line with the sector, and Trump's tariff postponement (by 90 days), I believe theres room to start repositioning into high-growth potential companies like GOOG.

Sector

Alphabet is the holding company of Google, operating in the Communication Services sector, specifically in the Internet Content & Information industry. According to the latest FactSet estimates, the sector is expected to grow by 7.2% in revenue and 12.2% in earnings, projections that closely mirror those for Google. I find it very helpful to start with a parallel to the broader sector, and an interesting insight emerges here. The S&P 500 Communication Services Index, where GOOG Class A and C shares collectively account for about 30%, has a P/E ratio of 20.40x, slightly higher than Googles (20.3x). Even from a technical perspective, on the weekly timeframe, the RSI of the sector approached the 30-point mark before the recent pullback. This parallel strengthens my view that GOOG shares may have reached an interesting bottom.

Business Analysis

To assess whether theres real alpha in Google and whether the recent pullbacks are a buying opportunity or not, I start by analyzing the business model, specifically to understand if the market, beyond pricing in tariff-related fears, may have also priced in fundamental deterioration. So how does Alphabet make money? According to the 2024 10-K report, the main revenue source is Google Services, which generated $304.93 billion, accounting for roughly 87% of total revenue. The second-largest segment is Google Cloud ($43.23 billion), around 12% of Alphabets revenue. Already from this overview, a key insight emerges: Alphabets outlook will depend heavily on Google Services, which essentially means advertising (Search, YouTube, Network), subscriptions (YouTube Premium, Google One), platforms (Play Store), and hardware (Pixel). One crucial note from the revenue breakdown: about 87% of Google Services revenue in 2024 came from Search, which means advertising, this definitely warrants a deeper look.

Market Share and Peers

The overwhelming share of revenue coming from advertising leads me to categorize Google more as a global advertising powerhouse than a cloud services provider, at least for now (though I believe Google Cloud will play an increasingly central role in future earnings). So whats Googles market share? The global digital advertising market size was valued at around $740 billion in 2024 Statista. With an annual ad income of $264.59 billion for Google alone, we are looking at a rough, 35% ad market share, clearly a dominating position. But dominance isnt everything. While Googles ad revenue grew by 10.5% in 2024, Metas ad segment grew by 21%. This is a relevant signal, suggesting a possible shift in advertising dollars, as Meta becomes a stronger player. Metas ad revenue totaled $160.63 billion, giving it a 21.7% market share. So yes, Google is still bigger, but its losing ground. This leads to a key question: If advertisers continue shifting toward other platforms (and since there are no long-term contractual obligations tying them to Google), does Google have the financial flexibility to reinvest and reclaim attention? Thats what I aim to explore in the next section, through the balance sheet.

Financial analysis:

We have seen the past data (2024), now that the first results of Q1 2025 are approaching, it makes sense to look to the future. For 2025, Alphabet expects a revenue increase of 13.87%, above the 3-year revenue CAGR of 10.75%, revenues that would generate expected earnings growth of 11.23%, a steady trend confirmed by consensus for years, which as an analyst I tend to trust since Google's results are often known for being very in line with expectations, with negative surprises averaging only around 1%. It has an operating margin of 28%, which, given its size, makes it in my view a nearly unique company.

It also naturally passes my debt screening criteria: with a debt-to-equity ratio of 8.66% and a current ratio of 1.84. But lets look at the house (cash flow), which in a context of potential change in advertising market habits, could actually be a very important cushion to rely on to remain competitive. From the cash flow statement, a positive and growing FCF is noted, higher than net income, so an FCF margin >10%, which in my view (according to my screening parameters) makes Alphabet a decidedly resilient company to possible sector changes (or rather, not yet at risk from that point of view). I see this as a true strength of Googles MOAT, its ability to remain highly flexible amid market changes.

Valuation

There don't seem to be any immediate reasons to fear cyclical changes, and tariff concerns have been postponed by three months, so what should be the fair value of GOOG shares? As simplistic as it may seem, I increasingly prefer working with multiples rather than discounted cash flows. I believe they offer greater flexibility, even if potentially less standardized. At $155 per share, Alphabet's trailing P/E ratio of 20.3x is calculated off of a TTM EPS of $7.70. Applying the forward EPS estimate of $8.97, the forward P/E declines to 17.94x, which is close to historical lows (17.2x) and significantly lower than the five-year average (24x), which I believe to be more appropriate to compare when valuing growth stocks like Alphabet, using this time frame makes sense when we are now in the context of the expansion of AI. Relative to its communication services-sector peers (five-year average P/E of 20.92x), Alphabet is trading at a level that is slightly cheaper.

So I see three possibilities:

• Conservative: P/E = 18x. Target price = $8.97 18 = $161.46
• Moderate: P/E = 20.92x (average for the sector). Target price = $187.64
• Guidance: 24x P/E (Five-year Average Alphabet). Target price = $215.28

Technical Confirmations

I find GOOG shares interesting from a technical perspective as well. I frequently use the 14-period RSI on a weekly timeframe to guide my decisions, and I see strong statistical significance in this indicator. Historically, when the RSI reaches the 30-point level on such broad timeframes, it has often marked excellent long-term entry points. Similarly, the price is approaching the 200-period moving average, and this narrowing gap makes the stock increasingly attractive from a technical standpoint based on historical patterns.

Risk

I tend to associate risk with the method I used to value the stock, in this case, multiples. So I ask myself: what kind of EPS decline would be needed to trigger a significant further drop in Googles share price? I tend to exclude a drastic loss in advertising market share for the reasons already outlined. At this point, I believe the main risk could be geopolitical, namely, tariffs. Its a risk that is more psychological at first, and only later becomes fundamental. This variable (despite the recent 90-day reprieve) would likely precipitate a sharp drop in Googles stock if it were tied to a dramatic economic contraction (as predicted by the Atlanta Fed). User loyalty is based on convenience, not on binding contracts with Google. It may sound minor, but it actually makes a big difference. In that scenario, we would see less corporate advertising spending, which would hurt Googles bottom line. Its worth mentioning though, that the worst negative earnings surprise Google has produced in the past ten years occurred in 2022, at -3%. This would lower Googles earnings but wouldnt undo the positive aggregate growth trend.

Conclusion

So I believe that, considering the concrete risks listed, markets may be overestimating the negative impact on Google. Based on the current EPS, which has remained stable in consensus estimates despite the recent negative sentiment, all target prices have turned positive, even in the most conservative scenario. Of course, the risk of a renewed escalation in tariffs is real and should be taken into account in any analysis.

This article first appeared on GuruFocus.