Alphabet (GOOGL) Signs Record Geothermal Deal, Is The Stock Undervalued Or Overvalued?
Alphabet (GOOGL) just signed the largest enhanced geothermal power purchase agreement on record with Fervo Energy to secure carbon free electricity for a planned Utah data center, directly linked to its expanding AI infrastructure needs.
For investors, this geothermal deal lands at a moment when Alphabet’s recent share price momentum has cooled, even as its longer term total shareholder returns remain strong. The stock is down over the past month and quarter, including a 30 day share price return of 5.93% and a 90 day share price return of 6.68%. At the same time, the year to date share price return of 6.3% and 1 year total shareholder return of 58.97% point to gains built up as the market has weighed heavy AI related capital spending, talent churn, new Gemini releases, cloud growth and projects like Waymo’s robotaxi rollout and the Utah geothermal partnership against concerns about execution and the payback on those AI and infrastructure investments.
Scan for other AI infrastructure players building long term energy and data center capacity by reviewing the hand picked 55 AI infrastructure stocks in the same theme as Alphabet’s geothermal move.
Alphabet stock has cooled even as analysts see roughly a 25% to 28% gap between the current price and their fair value ranges. Does that spread signal mispricing, or a market that is correctly pricing AI execution risks tied to moves like the Fervo deal?
Most Popular Narrative: 65% Overvalued
According to the most widely followed Alphabet narrative, a fair value of $202.62 sits well below the last close at $335.02, which leaves a wide gap for investors to interpret.
The stock would have to fall about fifty seven percent to reach it. I am not predicting that, and I would be surprised by it.
Which means the honest conclusion is the dull one. This is a magnificent company that I do not expect to own at my price any time soon, and I am at peace with that.
The narrative leans on strong historic earnings compounding, high returns on capital and a much lower assumed future profit multiple. Curious how those ingredients combine into that $202.62 figure and a 65.3% premium at today’s price.
Result: Fair Value of $202.62 (OVERVALUED)
Have a read of the narrative in full and understand what's behind the forecasts.
However, Alphabet’s heavy AI and data center spending, along with ongoing antitrust pressure, could still reset expectations and narrow that perceived overvaluation gap.
Find out about the key risks to this Alphabet narrative.
Another View: SWS DCF Model Points To Undervaluation
While a widely followed Alphabet narrative pegs fair value at $202.62 and characterizes the stock as overvalued, the SWS DCF model arrives at a very different conclusion. It estimates fair value at $446.49, which is about 25% above the current $335.02 share price, and presents Alphabet as undervalued instead. Which framework do you think better fits how Alphabet will convert its AI and data center spending into future cash flows?
For a closer look at how this cash flow based view is constructed and what inputs drive that $446.49 figure, review the full SWS DCF breakdown for Alphabet here Look into how the SWS DCF model arrives at its fair value.
Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Alphabet for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 50 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.
Next Steps
With mixed signals on Alphabet’s valuation and future cash flows, it helps to move quickly and check the underlying data yourself. To see both the potential upside and the concerns flagged in one place, review the 4 key rewards and 2 important warning signs.
Looking for more investment ideas beyond Alphabet?
If Alphabet has sharpened your focus on long term themes, do not stop there. A few minutes with a focused stock screener could surface ideas you will wish you saw earlier.
- Target resilience by checking companies with stronger balance sheets and fundamentals through the list of solid balance sheet and fundamentals (53 results).
- Spot potential value opportunities by scanning the 19 high quality undiscovered gems that the broader market may be slow to appreciate.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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