Google parent needs no introduction, and we’re not going to waste your time with one. The stock’s decline in 2022, attributed to inflation risks and the ChatGPT threat, is a laughably good example of how short-sighted the market can be. Over the following four years, the company’s market cap surged roughly fivefold as it proved it was more than ready for the new era of AI.
But at a $4.6T valuation and with free cash flows under pressure from heavy AI CapEx, some investors, like Michael ‘Big Short’ Burry, think this is irrational exuberance once again. Alas, the market can remain irrational for far longer than one can imagine. For what it’s worth, the Elliott Wave chart below indicates that at least a short-term drop is likely to take place soon.
It reveals that the surge from $83.45 in 2022 to over $404 per share earlier this month is a five-wave impulse pattern, marked (1)-(2)-(3)-(4)-(5). Given its speed, size and structure, it easily fits the description of a third wave, especially with the pre-2022 uptrend and the following drop preceding it.
If this count is correct, Alphabet is likely to cool off a bit in wave IV. The corrective pullback can be expected to drag the stock towards the support near $300 a share before the bulls can return in wave V. Once the entire impulse pattern is complete, possibly around the $500 mark, a notable retracement back to ~$300 would make sense.
AI bubble or not, today’s Big Tech companies have dominant and immensely profitable businesses to lean on, which should help them avoid a dot-com-style meltdown, even if their current decisions turn out to be not very prudent.
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