Alphabet (GOOG 1.63%) (GOOGL 1.39%) is part of the exclusive group of companies worth more than $1 trillion -- but there's only one member that has ever reached a $5 trillion market cap: Nvidia. However, in my view, there's a good chance that Alphabet will also be able to claim this achievement by the end of 2028.
Image source: Getty Images.
It's not that far off
Alphabet's current market cap is $3.8 trillion. So, the $5 trillion milestone doesn't seem out of reach at all. The stock would need to achieve a compound annual growth rate of about 9.6% through December 2028 to pull that off. That's in the neighborhood of the average returns for the broader U.S. equities market over the long run -- and Alphabet is no average company. True, we're talking about a three-year period, and a lot can happen in that time that would sink its stock price. However, there is yet another reason I believe Alphabet could get to $5 trillion.
NASDAQ: GOOG
Key Data Points
The valuation looks reasonable
If we compare Alphabet's valuation to those of its fellow Magnificent Seven" giants, a clear picture seems to emerge: It is one of the more reasonably valued members. Its forward price-to-earnings ratio is the second lowest in the group.
GOOG PE Ratio (Forward) data by YCharts.
Even looking at these megacaps' price/earnings-to-growth (PEG) ratios, Alphabet still appears to be one of the most attractive among them. Meanwhile, its revenue growth rate was in the middle of the pack as of the last quarter. It now generates the highest quarterly net income and also boasts competitive profit margins compared to its Magnificent Seven peers.
GOOG Revenue (Quarterly YoY Growth) data by YCharts.
Alphabet's apparently more reasonable valuation today could position it for better share price returns over the next few years.
A significant tailwind
Alphabet's financial results should also remain strong through 2028. The company remains the leader in the online search space thanks to Google, which generates substantial ad revenue. However, over the past two years, Alphabet has improved its operations thanks to artificial intelligence (AI). Adding AI Mode and AI Overviews to its search engine helped Alphabet fend off the threat to search volume posed by AI chatbots.
It also started offering a suite of AI services through its cloud business (its fastest-growing segment) and is using AI-powered algorithms to increase engagement on YouTube, which helps boost ad sales. AI is proving to be a significant growth driver for Alphabet, and this trend should continue through 2028 and beyond, considering we are still arguably in the early stages of the AI revolution. This is a key reason that investors should consider holding Alphabet's stock even beyond the next three years.
