What Happened?
Shares of online advertising giant Alphabet (NASDAQ:GOOGL) fell 6.5% in the morning session after the Department of Justice proposed changes to limit Google's control over online search and ads, following a court ruling that found the company (GOOGL) unfairly blocked competition for over a decade. The ruling includes recommendations for Google to sell key assets like Chrome and, potentially, Android to reduce its market dominance. Market reactions indicate that investors are anticipating these changes, recognizing the critical role the assets affected by the proposal play in Google's growth strategy.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Alphabet? Access our full analysis report here, it’s free.
What The Market Is Telling Us
Alphabet’s shares are quite volatile and have had 19 moves greater than 2.5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 22 days ago when the stock gained 7% on the news that the company reported third-quarter results that exceeded analysts' revenue, operating income, and EPS expectations. The segments themselves were also all solid, with Search, YouTube, and Cloud all exceeding revenue estimates.
Leading the pack was the cloud segment, which grew 35% year on year. Up next was YouTube, with combined ad and subscription revenue over the past four quarters surpassing $50 billion. To top it off, the company continued to demonstrate new ways to innovate in the Search business, its primary cash cow.
First, AI Overviews (like generative AI for Google Search) are being rolled out in 100 countries, reaching more than 1 billion users monthly.
Second, Circle to Search, which makes it as easy as pinching your screen to search for an image or video, is also available on over 150 million Android devices.
Lastly, the company continued to make significant progress in other bets that can expand its addressable market and create new monetizable opportunities. Weekly, Waymo reached 1 million fully autonomous miles and serves over 150,000 paid rides, the first among autonomous vehicle companies. These updates are closely watched and anticipated by analysts, as they often earmark significant progress toward the mass adoption and monetization of autonomous vehicles.
Moving to the bottom line, operating profit at the segments also beat. Interestingly, GOOGL noted that 25% of new code generated at the company is powered by AI, indicating the potential efficiency that can be delivered internally and to customers. Zooming out, we think this was an impressive quarter.
Alphabet is up 21.1% since the beginning of the year, but at $167.36 per share, it is still trading 12.5% below its 52-week high of $191.18 from July 2024. Investors who bought $1,000 worth of Alphabet’s shares 5 years ago would now be looking at an investment worth $2,575.
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