Investors appear to have struggled to make sense of Alphabet (GOOGL 0.88%) (GOOG 0.88%) stock in recent years. Although the Google parent continues to outperform the S&P 500, some wonder whether it has lost a step in the artificial intelligence (AI) race as chipmakers like Nvidia and stocks more closely linked to OpenAI's ChatGPT draw more attention.

Still, amid this confusion, Alphabet has become the cheapest stock in the "Magnificent Seven" as measured by its P/E ratio of 21. Moreover, the company continues to make moves showing it remains relevant in AI, and its investments could mean its stock price doubles (or more) in the next five years. Here's why.

The state of Alphabet

In some ways, the idea of Alphabet being behind in AI may seem surprising. The company first began to utilize this technology in 2001, and leveraged AI to assert early dominance in the digital advertising industry.

The profits from that business allowed it to invest in other enterprises. Among these investments was the purchase of YouTube in 2006, which became a major source of ad revenue. It also used some of that money to create Google Cloud, which today serves as its primary source of revenue outside of advertising.

Additionally, it owns numerous other businesses, such as the autonomous driving company Waymo and fitness tracker Fitbit. While Alphabet does not represent these enterprises in its financials, they will likely help it prepare for the day when digital ad revenue will become less critical to the company.

Driving growth

The one commonality to all of these businesses is AI. To that end, Alphabet announced it would invest $75 billion in capex this year, up from $53 billion in 2024.

While that sounds like a staggering sum, it is likely one Alphabet can afford. For one, 2024 revenue rose 14% yearly to $350 billion despite signs the business has matured.

For all the talk about advertising playing less of a role in the company, Alphabet's revenue surged 11% higher in 2024, representing 76% of total revenue. Since this is down from 77% of the 2023 total, investors should expect it to remain the primary revenue driver for some time to come.

The main growth driver right now is Google Cloud. Although it makes up only 12% of company revenue, it grew by 31% yearly, meaning the cloud and, by extension, AI has become more important to Alphabet, not less.

Moreover, the company held about $95 billion in liquidity as of the end of 2024. It also generated more than $69 billion in free cash flow in 2024, down slightly from $73 billion in 2023.

Indeed, the company spent more than $62 billion in share repurchases in 2024 and more than $7 billion in dividend payments. Hence, some of its spending priorities may have to shift over time to bankroll the $75 billion in capex spending. Still, this shows that Alphabet can maintain this pace of investment in the near term, especially if investments bear fruit in the form of increased free cash flow.

Furthermore, the stock is up by nearly 150% over the last five years. That includes an increase of around 45% since OpenAI released GPT-4o in May 2023. Amid Alphabet's work to advance AI, investors should expect the stock to stay on a positive growth trajectory, making a 100% gain in five years an achievable goal.

Alphabet in five years

Given the Google parent's existing technology and investment priorities, Alphabet stock should at least double over the next five years.

The competitive threat from ChatGPT has forced investors to rethink Alphabet's value proposition, and the $75 billion in plans to spend on capex this year may appear unsustainable.

While Alphabet has spent heavily, its continuing success in digital advertising and investments in technology have long made it a tech leader. The added spending should increase free cash flow and keep Alphabet competitive and its business growth in a virtuous cycle.

When also factoring in its low P/E ratio, Alphabet remains in a strong position to deliver outsized growth and double an investor's position in five years or less.