Why Alphabet’s Current Struggles Make It a Smart ‘Buy’ Ahead of Q3 Earnings
The performance of tech stocks has been a mixed bag in 2023, with giants like Alphabet Inc. (GOOG) showing signs of underwhelming results despite an otherwise strong market. While the S&P 500 and Dow Jones Industrial Average are surging to record highs, Alphabet’s stock is mired in correction territory—down over 13% from its 2024 highs. This article delves into the reasons behind Alphabet’s struggles and why now may be the time to consider buying this growth stock ahead of its Q3 earnings report.
What’s Causing Alphabet Stock to Underperform?
Alphabet isn’t just facing a minor slump; the company is grappling with multiple significant issues, ranging from business performance to regulatory scrutiny. Despite reporting a beat on both revenue and earnings for Q2, the market was less than impressed, largely due to YouTube’s inability to meet revenue expectations. This disappointment reveals how external factors are weighing heavily on Alphabet’s profitability.
Moreover, Alphabet finds itself in a precarious position against rising competitors like OpenAI. Recent funding rounds have lifted OpenAI’s valuation to a staggering $157 billion, underlining investor confidence as Alphabet risks losing its dominance in the lucrative search market. This threat is compounded by looming regulatory challenges, including a loss in an antitrust case regarding its exclusive search arrangements with Android and Apple devices. Such developments have left many investors cautious and uncertain about the company’s future.
Analysts’ Mixed Views on GOOG Stock
Despite the headwinds, some market analysts are looking favorably upon Alphabet. Citi has named GOOG, alongside giants such as Uber and Amazon, as top picks going into Q3 earnings. Pivotal Research has entered coverage with a “BUY” recommendation and a target price of $215, which speaks volumes given the pessimism surrounding the stock.
Currently, a consensus of 46 analysts assigns a “Strong Buy” rating to Alphabet, with 35 categorizing it as “Strong Buy” and only a few recommending a hold. The mean target price of $202.93 implies significant upside potential, indicating that the stock’s downward momentum may be losing ground.
Why Alphabet Is Still a Strong Buy
With much of the negative sentiment already priced into the stock, now could be a prime opportunity to invest. GOOG’s next 12-month price-to-earnings (PE) multiple stands at 20.6x—the lowest among its so-called “Magnificent 7” peers, dominated by leading tech companies. Although Alphabet may feel pressure to expedite its AI capabilities, the commentary from AI expert Oren Etzioni reminds investors that the competition is akin to a marathon, not a sprint.
Additionally, Alphabet possesses other growth avenues that have yet to contribute significantly to its bottom line. The Waymo self-driving unit, partnered with Uber for driverless ride-hailing services, and the burgeoning cloud segment, which reported $10 billion in revenue for Q2 and an operating profit of $1 billion, represent unrealized potential that could fuel future growth.
Conclusion: Time to Get Greedy
When looking at the broader market, Alphabet offers a rare opportunity to snag a growth stock that might soon rebound. Given its current pricing position and favorable analyst outlooks, investing in GOOG could prove to be a fruitful decision—especially as the market grapples with stretched valuations. In the world of finance, patience often pays off, and it may be time to get a little greedy as Alphabet prepares for its Q3 earnings report.
