Many UK investors choose to buy FTSE 100 or FTSE 250 stocks over S&P 500 shares. Since they may be more familiar with UK equities and have currency risk concerns, there’s logic behind a degree of home bias.
However, backing Britain alone can come at a cost. Despite the recent sell-off, the S&P 500 index has outperformed leading UK benchmarks in recent years. Plus, the premier US index represents over 50% of the total global stock market. British investors who ignore it are significantly limiting their potential investment choices.
With that in mind, here’s one S&P 500 tech giant that looks particularly cheap to me right now.
An undervalued stock
I’m talking about the conglomerate Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), better known as the parent company of Google and YouTube. Based on several valuation metrics, I think the stock looks like a potential long-term bargain today.
The firm’s price-to-earnings (P/E) ratio of 21.1 and forward P/E of 19.1 are currently the lowest among all Magnificent Seven stocks. In addition, Alphabet’s forward enterprise value/EBITDA ratio of just 11 means investors can buy the stock for the same multiple as 10 years ago. After a decade of strong growth, that’s an enticing prospect.
The Alphabet share price has slumped nearly 10% this year, impacted by wider market panic that gripped the S&P 500 as a whole. With recession risks looming for the US economy and uncertainty arising from Trump’s coercive, tariff-fuelled statecraft, further dips could be on the horizon.
However, I wouldn’t be surprised if Alphabet’s low for the year is in. The S&P 500 has rebounded in recent days, and should investor confidence fully return, I’d back the stock to climb higher as 2025 progresses.
The outlook for Alphabet shares
Alphabet stock faces several risks. Among the most prominent are two anti-monopoly lawsuits being pursued by the US Department of Justice. With regulatory focus on the group’s search business and advertising technology, the company could potentially face a forced breakup. This could spell trouble for shareholders.
That said, there are many good reasons for investors to be positive. Foremost is Alphabet’s human capital. An army of world-class artificial intelligence and machine learning engineers work for the company. It has a compelling offering to attract the best and the brightest. This provides the business with a wide moat despite fierce competition.
Furthermore, Google Cloud’s a particularly bright area for the business. Revenue for this division advanced 30% to $12bn in the fourth quarter. YouTube’s potential also shouldn’t be overlooked. With a rich dataset of text, audio, and video to tap into, Alphabet has a wealth of resources to deploy when developing new AI-powered models.
Finally, there’s the jewel in the company’s crown. Internet search is an area where Alphabet reigns supreme, and while it’s a more mature area of the business, it continues to exhibit strong growth. Search revenues climbed 12.5% to $54bn in Q4, demonstrating Google’s rising to the challenge posed by large language models (LLMs) like ChatGPT.
My investment manoeuvres
I bought more Alphabet shares in the recent S&P 500 downturn. It’s one of my core portfolio holdings and will likely remain so for many years. The stock’s worth considering today as it may not remain this cheap for long.
This post was originally published on Motley Fool
