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Alphabet's (GOOG, GOOGL) rough run in 2025 may be nearing the end.
In a new Jefferies report, its analysts argue that fears around Google's competitiveness in the AI era are overblown and that the stock's current valuation offers an "attractive entry point" for long-term investors. The firm maintained its Buy rating on Alphabet shares, keeping its price target at $210, representing more than 20% upside.
The stock has been down 9% year to date, underperforming the Nasdaq and lagging far behind high-flying "Magnificent Seven" peers like Nvidia (NVDA), which hit a record high earlier this week.
Jefferies' analysts, led by Brent Thill, identified five key reasons why Alphabet is one of the best-positioned AI consumer stocks.
To start off, Google Search has remained resilient against competition from chatbots like OpenAI's ChatGPT or Perplexity. Google has maintained a 90% stranglehold on the search market, and there are signs its AI features are gaining traction. For example, its AI Overviews are used by 1.5 billion monthly active users.
Meanwhile, YouTube is still undervalued, despite driving around 30% more revenue than Netflix, which trades at a higher multiple. Thill identified YouTube as a "catalyst" in a video-first world.
Alphabet's flagship large language model, Gemini, hasn't gotten as much attention as OpenAI's ChatGPT, but it now processes 480 trillion tokens monthly, a 50x annual increase, per Jefferies. Its integration across Google products helps generate more intelligent results. This performance edge and data scale are reasons to stay bullish on the company's AI future, Thill said.
Google Cloud Platform (GCP) has long trailed Amazon (AMZN) Web Services (AWS) and Microsoft (MSFT) Azure, but there is room for growth. Thill said there's upside from Google's leadership in AI and machine learning infrastructure tools and continued federal contracts. Investors may be underestimating the cloud unit's long-term potential.
Even as Google invests heavily in AI, its margins are quietly recovering. Operating margin hit a record 40% in Q1 2025. Thill expects that trend to continue, thanks in part to past cost-cutting efforts, such as layoffs and buyouts and AI-driven efficiencies.
In 2024, Alphabet's EBITDA margin expanded by 300 basis points. With $84 billion in net cash, the company has the flexibility to keep buying back shares and funding innovation.
Perhaps the biggest part of Jefferies' bull case is the stock's valuation. Alphabet trades at just 11x forward-12-month EV/EBITDA, below its 10-year average of 12.4x and well off its recent high near 15x. That's despite a solid balance sheet; improving margins; growth opportunities in AI, cloud, and video; and moonshots like Waymo.
