If Amazon.com (NASDAQ:AMZN) is trading at a bubble valuation, then Alphabet (NASDAQ:GOOGL)(NASDAQ:GOOG) has to be. Right?

I called Amazon a bubble stock recently because most of its revenue comes from retailing, it trades at over four times its revenue, and because it has shot to the skies over the last two years.

The House of Google doesn’t have that problem. Its July 12 opening price of $1,171 is just about 10% higher than last year’s $1,053. It has $100 billion in cash and short-term securities on its books — along with $25 billion in debt. You can justify a fast-growing tech stock selling at 7.7 times sales.

But there is one problem. This may no longer be a fast-growing tech stock. Revenues for the March quarter were lower than December. Operating income has been falling for two quarters. Management is facing new risks.

Google’s Transformation

Google is still a lot like Facebook (NASDAQ:FB), in that the vast majority of revenue comes from advertising. But unlike Facebook, the company has recognized this trap, and is becoming more like Amazon and Apple (NASDAQ:AAPL), selling devices, pushing artificial intelligence applications, and renting its cloud capacity.

Then there are its “other bets,” like Waymo self-driving car technology, Nest thermostats, and Google Fiber, which retains untapped potential.

Google stopped the roll-out of Fiber when the costs of delivering wired service to homes against entrenched competitors became obvious. That may change with 5G. No company is in the financial position of Google to bid on, and make use of, the 24 GHz and 28 GHz frequencies the Federal Communications Commission will soon auction off.

The millimeter-wave spectrum could deliver huge amounts of service from phone poles to customer homes, not just phone service, but a faster wired service. Instead of running wires from the road to each home, Google could provide its 1 Gbps second service by just turning on radios. With enough poles, it also becomes a mobile player. That’s not real, but it’s potential worth buying, at the right price.

So is Waymo, which may finally be ready to become reality. Google has a longer lead than anyone knows in self-driving technology. It is finally ready to go to market, fully cognizant of the implications, and when it finally makes “the deal” for the mass market the stock should take off. 

Worth Waiting For

That right price is worth waiting for but, as with Amazon, analysts are currently too optimistic, with 37 of 45 screaming buy and none at less than a hold.

Because there are risks. There are regulatory risks. There are risks in competing directly with Amazon in commerce, and directly with both Apple and Amazon in devices. Google Cloud is still not right, getting beat by Microsoft (NASDAQ:MSFT) as well as Amazon, and it will soon have its third leader in less than a year.

Google is changing, rapidly and in the right direction. But investors should be only paying top dollar for success, not for potential. This stock is now trading at nearly 50 times last year’s earnings. That’s too high when there is every evidence that its growing investments are going to take time to pay off.

I would love to get back into Google stock. I just can’t justify it at the current price. The bull market counter is that it will never get down to my target, but the whole economy is overheating, and as I said recently trade wars and deficits on behalf of stock buybacks do not make for long-term growth.

When the fools following Google finally scream “sell,” I’ll look to buy.

Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN and MSFT.