Key points
- Alphabet shares have been falling for more than a month.
- The divergence is notable considering the performance of technology stocks.
- Don’t expect the discount to last long, however, the long-term upside potential is too much.
- 5 stocks we like best from Alphabet
Although it managed to set a new all-time high in January, the shares of Alphabet Inc NASDAQ:GOOGL they traded slowly over the next few weeks. This is a usual divergence from the broader market, given how much Alphabet’s performance usually matters in the broader trend. As an example, the benchmark S&P 500 index has set new highs every week since mid-January and made a new high in yesterday’s session.
But Alphabet, on the other hand, saw its shares fall to a new low yesterday, as they have fallen nearly 15% since January. This brought them back to last summer’s levels, effectively canceling out all the upward momentum of the final months of last year which marked the turning point for almost all other stocks.
Stuttering growth trends for Alphabet
So, what’s going on with Alphabet and what kind of opportunities might it create for those of us on the sidelines?
The problems began in late January, when the tech giant’s earnings managed to beat expectations in headline numbers, but missed the mark with ad sales growth. Any signs of slowing growth appearing on the horizon, with inflation continuing to cool and expectations rising for an interest rate cut, will not be easily forgiven. It was at least understandable in 2022 and 2023, when rates were skyrocketing and growth rates everywhere were declining, but now that the opposite is true, it’s easy to see why investors were scared.
Matters weren’t helped by the company tinkering with its Gemini AI image generator last week, which prompted some of the loudest bears to even call for a change in leadership to steady the ship. With other tech giants like NVIDIA Corp NASDAQ:NVDA attracting investors’ attention for all the right reasons, it’s understandable that they’re frustrated.
Considering the long opportunity
However, it’s starting to look like the sell-off has become too much, which will be music to the ears of those of our readers who love a good deal. Consider this: Immediately following Alphabet’s earnings, no fewer than 13 analysts reiterated their buy rating on the stock, many of whom went so far as to raise their price target. Even the few who lowered their price targets remained bullish, and the decline in Alphabet shares was such that they are now trading well too.
Susquehanna, for example, reiterated its bullish stance on Alphabet shares and raised its price target to $170, which Wolfe Research also did, albeit with an increased price target of $180. From where Alphabet shares closed on Monday, that indicates an immediate upside of at least 30%, not bad for a stock with a market cap of $1.50.
Indeed, the fact that stocks have continued to fall is strange and unlikely to stay that way for long. With the stock’s Relative Strength Index (RSI) already in the low 30s, Alphabet shares are just a couple of days away from falling before becoming extremely oversold. The divergence also improves the company’s valuation, at least compared to its tech peers. Compared to the likes of the Apple company NASDAQ:AAPL AND Meta Inc NASDAQ: META, which have price-to-earnings (PE) ratios of 26 and 34, respectively, Alphabet’s 24 reinforces the case that it’s quite cheap right now. The feeling is even better when you consider the fact that NVIDIA’s PE ratio is currently 71.
Alphabet shares were trading weakly again early in Tuesday’s session, so it will be interesting to see where they start to find support. Investors looking to capitalize on this opportunity should wait for some consolidation around the $125-$130 mark, assuming the stock trades at that level. Assuming the rest of the market maintains its momentum in the meantime, as soon as the Alphabet bears run out of steam, we should see a rapid recovery.
Before you consider Alphabet, you’ll want to hear this.
MarketBeat tracks daily Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and Alphabet wasn’t on the list.
While Alphabet currently has a “buy” rating among analysts, top analysts believe these five stocks are better buys.
View the five stocks here
Just enter the stock market? These 10 simple stocks can help novice investors build long-term wealth without knowing options, technicals, or other advanced strategies.
Get this free report