Alphabet Stock Can Still Be Greater

• Despite its stock split, Alphabet is still down on the year
• Analysts keep insisting there are growth catalysts
• Google Cloud Remains a Problem

Despite heavy support from observers, even me, Alphabet (NASDAQ:GOOGL,NASDAQ:GOOG) stock is down 6.2% year-to-date.

The stock was expected to open near $2,650/share on March 18. That’s a price to earnings ratio below 24 for a company that grew 41% last year and nearly doubled its net income.

Management has been aggressively buying back stock and even announced a 20:1 stock split in the earnings release. Since the split announcement shares are down 10%.

Don’t Blame Putin

It’s easy to blame Vladimir Putin for Google’s problems. As I have written many times, war is unhealthy for economies and other living things.

War cuts revenues and increases costs. It’s one reason Google agreed to buy Mandiant (NASDAQ:MNDT) for $5.4 billion this month. Mandiant had changed its name and sold the Fireeye firewall business to private equity last October. What remained was a cloud-based system for detecting breaches called Mandiant Advantage. This will be bolted onto both Google Cloud and the company’s internal systems.

Google Cloud is the company’s big problem. It lost $890 million last quarter while rivals Amazon.Com (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT) were profitable. The unit’s problems were made worse by a botched layoff of about 100 Cloud workers this month. Over 1,400 Google employees signed a petition protesting how the lay-off was handled.

Google Cloud is run by former Oracle (NASDAQ:ORCL) executive Thomas Kurian, hired in 2018. The media remains enamored of Kurian. Personally I’m not a fan. Buying customers, losing money, and failing to gain share is not how I define success. But he has made Google an enterprise cloud player.

Growth Slowing

Growth at Google is slowing. Revenue was up “only” 32% last quarter, compared with the previous year.

Reporters have been obsessed with “slowing” growth for years. Big numbers are harder to move higher than smaller ones. Revenue growth had slowed going into the pandemic.

Last year’s raving success may have been partly due to privacy changes by Apple (NASDAQ:AAPL). Those changes reduced the ability of Meta Platforms (NASDAQ:FB), formerly known as Facebook, to collect data from other sites.

Google, however, isn’t dependent on third party data. Google search and YouTube videos deliver plenty of data on their own. Thus, Google announced its own privacy changes last month. It is also replacing controversial “cookies” with more anonymous tracking technology. The result may align advertisers more closely with Google’s sites, rather than third party sites that were already complaining of low prices.

Pounding the Table

Google’s problems haven’t changed analysts’ views of the stock.

We’re all in. Tipranks lists 30 analysts following Alphabet. Everyone is telling clients to buy it, with price targets almost 30% ahead of where the stock trades now.

Our David Moadel is typical. He calls the present price a “dip-buying opportunity” and says of the $3,000 level that “resistance levels are meant to be broken.”

The Bottom Line

Google operates around two dozen cloud data centers, mostly in North America. Unlike Amazon, it’s not yet in Australia, the Middle East or Africa. The company also operates a submarine cable network.

Google has had some success in selling hardware, not only with the Android phone design but with its own line of Chromebooks. There are still enormous growth opportunities there.

That’s why I bought some shares of Alphabet in January, and recently bought some more. They should be a core holding in any growth oriented portfolio.

On the date of publication, Dana Blankenhorn held long positions in AAPL, MSFT, AMZN and GOOGL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.