Alphabet stock has solid growth expectations and a strong moat. So why is the stock down so much this year? The Daily Breakdown dives in.
Friday’s TLDR
- GOOG stock has tumbled
- The fundamentals are clear
- But what about the risks?
Deep Dive
Let’s call it what it is: It’s been a tough stretch for the Magnificent 7. With just two sessions left in Q1, Meta is the only one that’s higher so far this quarter. When it comes to pulling back from its 52-week highs, Apple has the best performance with a 14% decline.
Sheesh!
Alphabet stands out given analysts’ expectations for double-digit growth and a forward price-to-earnings of just 18x — the lowest in the Mag 7 group and below the S&P 500’s current multiple of 21x. Despite this, the stock is down 13% this quarter and has fallen more than 21% from its record high in early February.
Most of us know Alphabet as the parent company for Google — the most popular search platform (and website) in the world. The company also owns the second-most popular website in the world: YouTube.
Behind search and ad revenue, the firm also has a rapidly growing but notably smaller business with Google Cloud, while operating other key business segments, like Android and Google Play.
The Fundamentals
Over the long term, earnings tend to be the main driver for stocks. For Alphabet, analysts expect adjusted earnings per share to grow 13.2% this year and 15.3% in 2026. On the revenue front, analysts expect 17% growth this year, followed by 11% growth in 2026. Here’s a look at previous revenue and net income results:
The company currently sits with $95.6 billion in cash and short-term investments, a figure that’s expected to climb in 2025 and 2026 — although its potential acquisition of Wiz for roughly $32 billion is still in the mix.
All in all, Alphabet seems to check a lot of boxes for long-term investors. It has shown strong growth in revenue and earnings, analysts predict solid growth over the next 12 and 24 months, it has a pile of cash, and the valuation is the lowest among mega-cap tech.
So what’s weighing on Alphabet stock?
Risks Exists
Last quarter, Google’s Cloud unit grew 30% year over year and generated revenue of $11.96 billion, slightly missing expectations of $12.19 billion. That miss may seem small, particularly as the company generated overall revenue of $96.5 billion that quarter. However, investors are looking at Google Cloud to be a major contributor to future growth. Plus, the firm is investing a significant amount into this unit and investors want to see that those investments are translating to stronger growth.
Other risks loom too.
Regulatory worries still swirl over Alphabet, as investors fear that federal agencies will continue to scrutinize the firm’s business practices and hand out penalties or lawsuits for what’s deemed as unfair business practices. The company faces economic risks too, as recent macro uncertainty could force businesses to pull back on ad spend, impacting Alphabet’s businesses and lowering growth expectations.
Lastly, competition remains fierce, not just in advertising, but also in the cloud where Google contends with other juggernauts, like Microsoft Azure and Amazon Web Services.
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The setup — Alphabet
Currently trading in the mid-$160s, Alphabet shares have fallen notably from the recent highs.
However, it’s still trading above the key breakout area near $150, as well as its 200-week moving average, which has been a long-term level of support for GOOG and is currently near $137 and rising.
According to Bloomberg’s Analyst Recommendations, analysts have an average 12-month price target of about $219, implying about 35% upside. Of course, just because that is the average target, does not mean the stock will get there.
For investors who like fundamentals, they may find the current 20% pullback as an attractive entry point and one that properly accounts for all of the stock’s current risks. For others though, they may view the fundamentals as attractive, but require a larger pullback to properly account for the risks.
Should shares pull back even more, investors will want to keep a close eye on the areas mentioned above: The $150 breakout level and the rising 200-week moving average.
And lastly, some investors may not feel that Alphabet has the competitive advantage that would justify an investment, either at current levels or lower, and that’s okay too.
Options
Buying calls or call spreads may be one way to take advantage of a pullback. For call buyers, it may be advantageous to have adequate time until the option’s expiration.
For those that aren’t feeling so bullish or who are looking for a deeper pullback, puts or put spreads could be one way to take advantage. They can also be used to hedge against further declines.
To learn more about options, consider visiting the eToro Academy.
