Alphabet Gets Kicked Out of the $4 Trillion Club After Its Record $505 Billion Drop. Here's What History Says Could Come Next
Alphabet is down big from its highs, but the stock isn't necessarily cheap.
On Thursday, Alphabet (GOOG -1.45%) (GOOGL -1.40%) experienced its largest single-session percentage decline and the largest nominal loss in history, shedding $505 billion in market cap. The company has now exited the $4 trillion club, being surpassed by Microsoft for the third most valuable company in the world. This massive drop was primarily due to Alphabet's heavy investment in artificial intelligence (AI) and its future earnings growth now heavily reliant on AI investments paying off.
During past sell-offs, Alphabet's price-to-earnings ratio was significantly lower and its free cash flow (FCF) yield was much stronger than it is today. Alphabet's FCF yield, which is the FCF per share divided by the stock price, fell to a ten-year low during the 2022 sell-off. However, with AI investments now making up a significant portion of Alphabet's future growth, the company's FCF yield is expected to turn negative in early 2027, given its cash burn rate.
Investors who believe in Alphabet's ability to convert long-term investments into future cash flows may see this as an opportunity to buy the stock at a lower price.
Written by urgent.news from Motley Fool's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
