Growth stocks, once in the doldrums, are now showing signs of life, shaking off fears of a U.S. recession and the possibility of a Fed rate cut in the near future. Yet, many of them continue to trade beneath their lofty heights from 2024. The Nasdaq Composite, heavily laden with technology behemoths, remains almost 6% below its historical zenith. $NASX.
The Struggle of GOOG Stock
Alphabet, Google’s parent company, soared to record heights earlier in July but has faced a swift and steep descent since. Despite trumping Wall Street’s expectations on both the revenue and profit fronts in Q2, the company’s stock stumbled badly post-earnings, primarily due to slightly lackluster performance from its YouTube division.
Worries intensified after OpenAI introduced SearchGPT, casting doubts on Google’s supremacy in the search market. Combined with concerns of losing the artificial intelligence race to competitors like ChatGPT, the tech sell-off ensued, causing Alphabet to lag behind its peers in the recovery.
Rumors of the Justice Department contemplating an Alphabet breakup, mandating the divestiture of the Chrome browser and Android OS, further darkened investors’ sentiment. Additionally, losing an antitrust case regarding exclusive search agreements didn’t help Google’s cause either.
Critical Examination of Alphabet’s Sell-Off
I firmly believe that the recent sell-off in Alphabet is an overreaction. The fret over YouTube’s future is unwarranted, considering its dominant position in the streaming landscape, with ample room for growth through paid subscriptions. As for the AI rivalry, it is still early days, and Alphabet has shown significant improvement from its setbacks in 2023.
Although regulatory risks loom large, the tech industry’s collective struggle against heightened scrutiny is a shared burden, rather than a solitary plight faced by Alphabet.
Interestingly, Gene Munster of Deepwater Asset Management suggests that a potential Google division, though improbable, could unlock greater shareholder value due to a superior sum-of-parts valuation.
GOOG Stock Projections
The outlook on Alphabet stock is divided among investors. While challenges like tough comparables in the latter half of 2024, escalating depreciation expenses from AI investments, and intensifying competition in the search and digital ad space raise concerns, the prevailing sentiment is bullish on GOOG.
With an overwhelming majority of analysts assigning a “Strong Buy” or “Moderate Buy” rating to Alphabet, the mean target price of $203.76 signifies a potential upside of close to 24% from recent closing prices.
Investment Consideration on Alphabet Stock
Amidst the headwinds faced by Alphabet, including a lagging perception in AI ventures despite earning some respect in the field, the stock appears fairly priced with a forward price-to-earnings ratio of 20.2x. Overall, Alphabet emerges as a compelling growth opportunity at current valuations, riding on its progressing AI initiatives.
