Alphabet (GOOGL) has just priced an upsized US$84.75b equity capital raise, including a US$10b private placement with Berkshire Hathaway, to fund heavy artificial intelligence infrastructure spending and ease capacity constraints.

The share price has eased in the short term, with a 1-day share price return of 0.79% lower and a 7-day return down 7.67%, while the 1-month share price return is 6.33% lower. However, momentum over longer horizons remains strong, given the 90-day share price return of 19.31%, year to date share price return of 13.91%, and a very large 1-year total shareholder return of 114.36% alongside a 5-year total shareholder return of roughly 3x.

If you are interested in how this kind of heavy AI spending is playing out across the market, it is worth scanning for other AI infrastructure stocks using the Simply Wall St screener, starting with 48 AI infrastructure stocks

So with Alphabet still trading about 20% below the average analyst price target, yet carrying a valuation score of just 2 out of 6, are you getting an undervalued AI powerhouse here, or is the market already pricing in future growth?

Most Popular Narrative: 17.1% Undervalued

Alphabet's most followed valuation narrative pegs fair value at $433 per share, above the last close of $358.99. This sets up a debate about how much AI growth is already reflected in the price.

Alphabet is a compounding machine hiding under an ad empire. With AI monetization finally catching fire, Cloud turning profitable, and more YouTube monetization coming, this is not just a big tech stock, it is an innovation platform priced like a mature business.

Read the complete narrative. Read the complete narrative.

Want to see what sits behind that premium fair value? The narrative leans on faster top line growth, widening margins and a future earnings multiple more often linked to AI leaders.

According to oscargarcia, the key ingredients are high margin Google Services cash flows, a Google Cloud business that has shifted into profitability, and Gemini driven AI features that run through both segments. That combination feeds into a discounted cash flow style framework using a 7.58% discount rate and assumes revenue and earnings keep expanding from an already very large base.

For investors comparing that story with current market pricing, the gap between the $358.99 share price and the $433 narrative fair value comes down to one question: how confident are you that AI infrastructure spending and monetisation across Search, YouTube and Cloud can support the growth and profitability path embedded in that narrative?

Result: Fair Value of $433 (UNDERVALUED)

However, you also need to weigh regulatory action on search and ads, as well as the risk that rival AI products steadily chip away at Google’s core user base.

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Another Angle On Value

While the user narrative points to a fair value of $433 per share and calls Alphabet undervalued, the Simply Wall St DCF model paints a cooler picture. On that framework, Alphabet at $358.99 is trading above an estimated future cash flow value of $326.72, which leans toward overvalued rather than cheap. It leaves you weighing which set of assumptions about future cash flows feels closer to how you think AI spending and monetisation could unfold.

For readers who want to see exactly how those cash flow assumptions stack up period by period, our DCF model is laid out in full, including the discount rate and terminal value logic, so you can judge how realistic it feels next to your own expectations. 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 47 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 the article pointing to both strong enthusiasm for AI spending and questions around valuation, now is a good time to look through the numbers yourself and test your own assumptions against the key risks and rewards that other investors are focused on, starting with 2 key rewards and 1 important warning sign

Looking for more investment ideas?

If Alphabet's story has you thinking bigger about your portfolio, do not stop here. Use focused stock lists to spot opportunities others may overlook.

• Target resilient cash generators and broaden your watchlist with the 47 high quality undervalued stocks that combine quality with appealing pricing.
• Prioritise strength and staying power by scanning the solid balance sheet and fundamentals stocks screener (47 results) and see which companies back their story with robust finances.
• Get ahead of the crowd by checking the screener containing 22 high quality undiscovered gems before these under the radar ideas attract wider attention.

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.