Don’t Rush to Buy GOOG Stock as Alphabet Heads Toward Bear Market Territory
Alphabet (GOOG) (GOOGL) has seen a reversal of fortunes this year after gaining nearly 65% in 2025 to clock its second-best year ever. The stock was the best-performing Magnificent 7 stock last year by a fairly good margin, but 2026 has been a different ballgame.
Alphabet is up just 6.5% this year and is underperforming the S&P 500 Index ($SPX). The stock peaked above $400 in May and has since plunged almost 18%. It is now nearing a bear market, which, by definition, is a drawdown of 20% from recent highs. As I noted in my article in January, I did not expect GOOG to repeat its stellar 2025 performance this year. In this article, we’ll explore whether the stock's valuations are now attractive enough to make it a “buy” or whether investors should continue to stay on the sidelines.
Why Has GOOG Stock Underperformed?
To begin with, let’s decode GOOG’s recent underperformance. I believe the stock’s valuation got a bit ahead of the fundamentals and was perhaps the root cause of the underperformance. The ever-growing capex is also making markets apprehensive, and the company raised its 2026 budget to between $195 billion and $205 billion during the Q2 2026 earnings call. Moreover, while Alphabet’s cloud business is doing incredibly well with sales rising 82% year-over-year in Q2, its core search business has shown some signs of slowdown, with revenues slightly trailing estimates in the quarter. The company warned of tougher comps for its search business in the current quarter, signaling markets to temper their expectations. Alphabet has also faced an exodus of top artificial intelligence (AI) talent, which also seems to be pressuring the stock.
Alphabet Stock Forecast
Analyst action following Alphabet’s Q2 earnings was unusually mixed. Most brokerages, including JPMorgan Chase, Piper Sandler, UBS, Oppenheimer, and Cantor Fitzgerald, lowered their respective target prices. However, BMO Capital Markets, Pivotal Research, and Roth Capital raised their target prices, while DZ Capital upgraded the stock to a “Buy.”
More recently, Rosenblatt Securities analyst Scott Devitt initiated coverage on GOOG last month with a “Buy” rating and $410 target price. Devitt believes that “concerns around AI chatbots threatening Google's search business have largely played out." The brokerage is meanwhile constructive on Alphabet’s cloud business. Last week, Wolfe Research analyst Shweta Khajuria maintained her “Outperform” rating and $460 target price on Alphabet while naming the stock a top pick for 2027.
Overall, of the 54 analysts polled by Barchart, 47 rate Alphabet as a “Strong Buy” and three as a “Moderate Buy.” The remaining four analysts rate GOOG as a “Hold” or some equivalent. Alphabet’s mean target price sits at $432.25, which is over 31% higher than current levels.
Should You Buy GOOG Stock After the Dip?
Berkshire Hathaway (BRK.B), which is chaired by Warren Buffett -- arguably among the best value investors of all time – has been raising its stake in Alphabet and invested another $17 billion in Q2, making the company its third-biggest holding in the process. However, I have been circumspect on GOOG’s valuations for some time now.
While Alphabet’s forward price-to-earnings (P/E) multiple is 16.7x, which appears attractive, I would look at the normalized earnings, as the GAAP earnings are elevated due to the massive gains the company has been reporting on its investing portfolio. Notably, in Q2, Alphabet reported $99 billion as “other income,” which was predominantly the gains on its investments in Anthropic and SpaceX (SPCX).
Alphabet’s forward P/E based on adjusted earnings is almost 25x. The multiple has corrected from the recent highs but is still not enticing enough to make GOOG stock a compelling buy.
To be sure, we need to look beyond the one-year numbers, as tensor processing units (TPUs) and graphics processing units (GPUs) would start contributing meaningfully to Alphabet’s earnings only in 2027 and beyond. For instance, Citizens JMP expects TPU sales to reach about $3 billion in 2026 while projecting them to rise to $25 billion in 2027.
However, I see little margin of safety in Alphabet stock at these levels, particularly amid the recent worsening of the macro environment, and would be happy to sit out for now and won't rush to buy the dip just yet.
On the date of publication, Mohit Oberoi had a position in: GOOG . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.