While it managed to tag a fresh all-time high in January, shares of Alphabet Inc (NASDAQ: GOOGL) have been trading softly in the weeks since. It’s a usual divergence from the broader market, given how much Alphabet’s performance usually counts for in the broader trend. For context, the benchmark S&P 500 index has been setting fresh highs effectively every week since the middle of January and tagged a fresh high in yesterday’s session.
But Alphabet, on the other hand, saw its shares fall to a fresh low yesterday, as they are now down almost 15% since January. This has them trading back at last summer’s levels, effectively undoing all the upward momentum from the final months of last year that marked the turning point for almost every other stock.
Stuttering Growth Trends for Alphabet
So, what’s been going on with Alphabet, and what kind of opportunity could this be creating for those of us on the sidelines?
The trouble started in late January, when the tech giant’s earnings managed to top expectations for its headline numbers but missed the mark with its ad-sales growth. Any sign of a growth slowdown appearing on the horizon, with inflation continuing to cool and expectations rising for a cut to interest rates, will not be forgiven easily. It was at least understandable in 2022 and 2023 when rates were soaring, and growth rates everywhere were falling, but with the opposite now the case, it’s easy to see why investors were spooked.
Matters weren’t helped by the company’s fumbling of their Gemini AI image generator last week, which prompted some of the louder bears to even call for a change in leadership to steady the ship. With other tech giants like NVIDIA Corp (NASDAQ: NVDA) grabbing investor attention for all the right reasons, it’s understandable that they’d be frustrated.
Considering The Long Opportunity
However, it’s starting to look like the selloff has become overdone, which will be music to the ears of those of our readers who love a good bargain. Consider this: in the immediate aftermath of Alphabet’s earnings, no less than 13 analysts reiterated their Buy rating on the stock, with several going so far as to boost their price target. Even the handful that lowered their price target remained bullish, and such has been the drop in Alphabet shares that they’re now trading well even these.
Susquehanna, for example, reiterated the bullish stance on Alphabet shares and upped their price target to $170, something Wolfe Research did too, albeit with a boosted price target of $180. From where Alphabet shares closed on Monday, that’s pointing to an immediate upside of at least 30%, not bad for a stock with a $1.5 market cap.
Indeed, the fact that shares have continued to sink is strange and is unlikely to remain the case for long. With the stock’s relative strength index (RSI) already in the low 30s, Alphabet shares are within another down day or two of becoming extremely oversold. The divergence also improves the company’s valuation, at least relative to its peers in the tech industry. Compared to the likes of Apple Inc (NASDAQ: AAPL) and Meta Inc (NASDAQ: META), who have price-to-earnings (PE) ratios of 26 and 34 respectively, Alphabet’s 24 bolsters the argument that it’s quite cheap right now. It feels even better when you consider the fact that NVIDIA’s PE ratio is currently 71.
Alphabet shares were trading softly again to start Tuesday’s session, so it will be interesting to see where they start to find some support. Investors considering taking advantage of this opportunity should watch for some consolidation around the $125-130 mark, assuming shares trade down there. Assuming the rest of the market maintains its momentum in the meantime, as soon as the Alphabet bears run out of steam we should be looking at a quick catch up play.
