Alphabet is the most profitable company in the S&P 500, and it is traded at a lower price than Nvidia, Microsoft, Apple, and Amazon. This shows the way the stock market is rewarded in the potential of the future more than actual or historical gains. Investors are not merely seeing how much a company earns nowadays. They are more interested in what they will earn the next day and in what respect will the increase be rapid.
Nvidia, as an example, has emerged as the front face of the artificial intelligence boom. Its chips are driving the hottest wave of AI applications, and investors think the demand is only going to continue expanding. This enthusiasm has driven the value and prices of shares at Nvidia to all-time highs, with current earnings better than those at Alphabet. Both Microsoft and Apple are enjoying dominant brands in cloud computing, as well as in consumer technology, and investors view their business models as robust and with lots of future promises. Amazon, though not as profitable as Alphabet, has a strong market share in the e-commerce business and cloud services, two business segments that are projected to continue growing.
Alphabet derives most of its revenue through Google search and advertising. These are very lucrative, but it feels that the growth in such areas might be slowing down, as perceived by investors. Alphabet has promising projects in cloud computing and artificial intelligence. However, the company is perceived to be falling behind Microsoft and Amazon in the cloud, as well as Nvidia in AI hardware. This impression causes Alphabet to have a lower price-to-earnings ratio in comparison with its counterparts.
The impact of this is apparent as the share price of Alphabet is discounted despite its good profits and healthy balance sheet. In case the market learns to take Alphabet more seriously with respect to AI and cloud expansion, the company may also increase its valuation. Day to day, the divergence is indicative of investor restlessness regarding the extent to which Alphabet will be able to capitalize on the next round of technological innovation. That benefits value investors with a situation in which the market is understating Alphabet going forward.
The stock market cares more about future earnings potential than the past, and that may be why Nvidia, Microsoft, Apple (NASDAQ: AAPL), and Amazon (NASDAQ: AMZN) are all worth more than Alphabet.