Warren Buffett hasn’t made too many mistakes when it comes to using his famous value-based approach to buy stocks. But he has dropped the ball a few times, and one of his biggest fumbles came in the tech sector.

Opting for an established brand name with a dominant position, a cheap valuation, predictable cash flows, and billions in buybacks and dividends, Buffett built a $10.7 billion stake in International Business Machines in late 2011. Six years later, after a long and damaging decline for the tech giant, he threw in the towel, ate a 20% loss and focused on Apple stock.

Cheap stocks could be tempting to investors, but they can also be cheap for a reason, and the unwary could be dragged into a value trap of continuing declines.

Google parent Alphabet might have found itself smack in the middle of the value-versus-trap debate heading into the final weeks of a difficult first half for the search giant.

The stock is down nearly 6% since the start of the year, and Alphabet’s losing share in its key search market to artificial-intelligence-powered alternatives such as ChatGPT and Perplexity.

It also faces the prospect of having to sell the Chrome browser, and share search data with rivals, after losing an antitrust lawsuit last year brought by the U.S. Department of Justice.

But it also has some compelling businesses that could be more valuable when separated out. YouTube could challenge Netflix, Google cloud could take on Microsoft’s Azure, and Waymo is emerging as a longer-term rival to both Uber Technologies and Tesla.

Alphabet stock is also supported by a consistent and predictable dividend, as well as a $70 billion share-buyback program unveiled earlier this spring.

Barron’s, in fact, unveiled Alphabet as one of its stock picks in late 2024, citing the earnings power of its dominant search business.

What the stock is right now, however, is cheap. Trading at around 19 times its projected profits over the next 12 months, based on data from WisdomTree, Alphabet is the cheapest of the so-called Magnificent Seven stocks, and the only member trading below the 22.5 times valuation of the S&P 500.

It is also poised to enter a new phase of its capital-markets life, which began with a summer 2004 initial public offering that priced shares at $85. Adjusted for subsequent stock splits—two-for-one in 2014, and 20-for-one in 2022—that IPO price is about $2.13.

Alphabet is set to become the second-largest stock, in terms of overall weight, in the Russell 1000 Value Index when FTSE Russell rebalances its indexes later this month. It will also remain partly in the Russell 1000 Growth Index.

Exchange-traded funds that track Russell indexes are likely to alter their holding accordingly, with value-focused funds adding more Alphabet shares as a result.

But that isn’t likely to change the broader value-trap debate, which D.A. Davidson analyst Gil Luria argues is centered around Alpabet’s cumbersome corporate structure, not its reliance on search-driven revenue.

“Google allowed the value of AI innovation invented in its labs to be captured by Nvidia, Microsoft and OpenAI while it trades at 16x earnings, much like Xerox allowed Microsoft and Apple to take the value of the PC technology in the 80s,” he said.

“By keeping the conglomerate structure, management is dooming all of its businesses to the 16x search multiple, instead of allowing them to trade at the much higher levels linked to Netflix, Microsoft, and Tesla,” he wrote in a note published last month. Luria rates Alphabet stock at Neutral with a $160 price target. A breakup, however, would take the overall value of the businesses to around $300 a share, he notes.

Curiously, outside of his investment in IBM, Buffett has said that not investing in Alpabet remains one of his biggest tech sector mistakes.

“We’ve looked at it,” he told shareholders in 2018. “I made the mistake in not being able to come to a conclusion where I really felt that at the present prices that the prospects were far better than the prices indicated.”

He might have a similar challenge today.

Alphabet shares slipped 0.7% over the Wednesday session, compared with an 0.3% decline for the S&P 500, to close at $177.35 each.