GOOG’s Mixed Signals: Decoding Alphabet’s Stock Trajectory
Alphabet (NASDAQ:GOOGL,NASDAQ:GOOG) stock may be bouncing back, after the Google parent’s recent earnings letdown, but a continued recovery in the near-term may not be in the cards. Multiple factors may impact share performance, including one that is often overlooked but remains a risk (the antitrust lawsuit filed against Alphabet by the U.S. Department of Justice).
So, with the possibility of investors once again cooling on the stock, is the right move now to exit a position, if you currently own GOOG? I wouldn’t jump to that conclusion. Nor would I jump to the conclusion that this is a full-on “stay away” situation for those thinking about starting to build up a position. Read on, to see what exactly the best move now is with Alphabet stock.
Uninspiring Performance Ahead for ‘Magnificent’ GOOG Stock
GOOG is one of the so-called “Magnificent Seven” stocks. the seven tech giants that account for around half of the market cap-based weighting of the Nasdaq Composite stock index.
Yet while GOOG stock may be “magnificent,” much might drive an uninspiring performance for shares. Beyond the possibility of the broad market being affected by macro issues like high interest rates, risks/uncertainties directly related to the search advertising and cloud computing powerhouse could cause this stock to stumble.
For one, concerns about the future growth of Google’s Cloud unit (a big reason behind the post-earnings sell-off) could once again spike. Investors may react negatively to any news suggesting cloud demand is softening further. Or, that cloud competitors are gaining a greater edge.
Even as cloud computing for now represents a small portion of Alphabet’s overall business, Wall Street is looking to this segment to drive earnings growth down the road.
That’s not all. Worries about Alphabet’s progress in the area of generative AI falling short of other “Magnificent Seven” components may also again weigh on shares. As I mentioned above, developments related to the DOJ lawsuit may also negatively affect this stock.
Still, There’s a Silver Lining
A variety of factors may lead to near-term underperformance for GOOG stock compared to the other “Magnificent Seven” names. However, there is a silver lining to this disheartening takeaway.
With expectations dialed back, there’s great potential for shares to really take off down the road, upon the unveiling of positive surprises.
For instance, investors have perhaps hastily concluded that underwhelming growth last quarter for Google Cloud means decelerating growth ahead. Merely keeping year-over-year cloud growth steady (at around 22%) when it next reports results may be enough to put this concern to rest.
Given the negative reaction to Alphabet’s latest earnings, it’s easy to forget that the company beat both on revenue and earnings. Largely, thanks to a rebound in digital ad demand. A further recovery for Alphabet’s main revenue source could outweigh today’s concerns about cloud and generative AI-related competition.
When it comes to the DOJ antitrust litigation, the “worse case scenario” (Alphabet losing the case) may not be as bad as it sounds.
As I’ve pointed out before, as one sell-side analyst (JPMorgan’s Doug Anmuth) pointed out when the trial began, there could even be a net benefit to court-mandated changes to Alphabet’s search exclusivity practices.
Bottom Line: Be Patient, but Feel Free to Keep an Eye
To reiterate, it’s likely going to take time for GOOG to get fully back on track.
Like I argued in my last Alphabet article, approach this stock slowly. In the coming weeks/months, the opportunity to enter/add to a position at lower prices is likely to emerge.
However, this stock could really pay off for patient investors. Shares will undoubtedly trend higher over time, in line with increased earnings. Not only that, there’s potential for multiple expansion. GOOG trades at a discount to its “magnificent” peers, but improved sentiment could help bridge the gap.
In short, feel free to keep an eye on GOOG stock.
GOOG stock earns a B rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
