Google’s Three-Year Stock Price Deviation Analysis Based on DCF Model

Zhirui Wang ()
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Zhirui Wang: Glasgow University

A chapter in Proceedings of the 2025 3rd International Academic Conference on Management Innovation and Economic Development (MIED 2025), 2025, pp 327-334 from Springer

Abstract: Abstract This study evaluates Google’s enterprise value over three years (2021–2023) using the Free Cash Flow (FCF) discount method, aiming to provide actionable insights for investors and management. By applying the Discounted Cash Flow (DCF) model, the analysis quantifies Google’s theoretical stock value and compares it with market prices, revealing significant valuation discrepancies: overvaluation by 24.56% in 2021, undervaluation by 5.83% in 2022 amid macroeconomic turbulence, and overvaluation by 19.17% in 2023 driven by AI-driven optimism. Key drivers include macroeconomic shifts (e.g., Fed rate hikes), industry competition (e.g., OpenAI’s breakthroughs), and strategic pivots (e.g., AI product launches). While the DCF model demonstrates strengths in valuing high-growth tech firms through cash flow projections, limitations persist, such as reliance on historical data and exclusion of non-financial factors (e.g., innovation ecosystems, political risks). The findings underscore the necessity of blending quantitative metrics with qualitative assessments of technological trends and market dynamics. For investors, this highlights the importance of balancing short-term valuations with long-term growth potential in AI and cloud computing. For management, optimizing R&D investments and capital allocation is critical to sustaining market confidence. Future research should integrate non-financial indicators, employ scenario analysis, and extend forecast horizons to enhance valuation accuracy.

Keywords: Enterprise Valuation; Stock Price; Free Cash Flow (FCF); Discounted Cash Flow (DCF) Model; Google Inc. (search for similar items in EconPapers)
Date: 2025
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DOI: 10.2991/978-94-6463-835-6_35

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