P/E ratio: Google 17, Amazon 21. Are they currently undervalued among the Magnificent Seven?

"Buying a wonderful company at a reasonable price is far superior to buying a mediocre company at a very high price."

In his early years, Old Ba followed his teacher Graham and preferred "cigar butt investing" — buying ordinary companies at cheap prices. Later, under the influence of Munger, he shifted focus, starting to emphasize company quality and willing to pay a reasonable price for excellent enterprises. "Price is what you pay, value is what you get." The stock price paid and the intrinsic value obtained are two different things; the key to investment is ensuring that the price paid does not exceed its actual value.

Good companies also need a good price, but a reasonable price does not equal the lowest price; rather, it is a price that is cost-effective relative to the company's long-term value. Recently, Old Ba made a large position purchase of Google at an average price of $350. The price was not the lowest; it dropped to $314 a few days ago, but has now rebounded to around $356. Consistent with Old Ba's preference for consumer goods investments, similar to Apple 🍎, Google's massive investment in AI infrastructure is slowly becoming a daily consumer product for people.$Berkshire Hathaway B(BRK.B.US)

An overview and historical percentile comparison of the latest valuations of the Tech Seven Giants.

Horizontal Comparison of Valuations of the Seven Giants (As of 2026-08-02)

Sorted by PE from low to high: Google < Meta < Amazon < Microsoft < NVIDIA < Apple < Tesla.

Are Google and Amazon "Cheap"? — Need to Look at It in Two Layers

Google: Indeed at a Historical Valuation Low

• The current PE of 17.8 is below the lower bound of the 5-year range (20.3) and far below the 10-year median (27.5). This represents a rare valuation compression since Google's IPO.
• However, note that Google's PB (7.0) is already higher than the 5-year median (6.6), and PS (9.8) is also in the upper part of the 5-year range. This indicates that the low PE is not because "the market overall gave a low pricing," but because recent earnings growth outpaced stock price gains — EPS growth compressed the PE.
• In other words, Google's low PE is driven by "earning more," not by "stock price falling." But recent negative free cash flow (-$5.9 billion) and significant increases in capital expenditures are indeed concerning.$Alphabet - C(GOOG.US)

Amazon: Larger PE Compression, but More Obvious Base Effect

• PE of 21.6 is below the 5-year lower bound (33.1) and less than one-third of the 10-year median (76.8). On the surface, it appears extremely undervalued.
• However, Amazon has historically been a high PE company — with thin profit margins and high profit elasticity. The drop in PE from 70 to 20 mainly reflects profit release from AWS and advertising businesses, where a significantly raised profit base compressed the PE.
• PB of 5.3 is at a 5-year low, while PS of 3.8 is slightly above the 1-year high — valuation signals are not entirely consistent. The stock price surged by over 14% after the Q2 2026 earnings report, indicating that the market recognizes Amazon's current operational status.$Amazon(AMZN.US)

Key Conclusion: Low PE ≠ Low Stock Price

The phenomenon you observed is real — Google and Amazon's PEs are indeed the lowest among the Seven Giants and are at their own historical extremely low percentiles. However, the mechanism behind this is:

1. Profit growth speed exceeds stock price growth speed → PE is passively compressed, which does not mean the stock price is undervalued
2. PE only measures current earnings, ignoring growth expectations → If future earnings growth slows down, PE may not compress further
3. Different business models naturally correspond to different PE levels → Amazon has historically had thin profits and high PE, while Google's advertising business has high profit margins but a clearer growth ceiling

Finally, good companies also need a good price. I am bullish on Google long-term, bullish on Amazon, and even more bullish on Old Ba's judgment.

Not investment advice