If you’ve been following my work, you’ll know that I’m a big fan of Alphabet Inc (NASDAQ:GOOGL). Whether it’s from a fundamental, technical or even a philosophical point-of-view, I just see great things in store for GOOGL stock … and really, just about anything tied to the company itself.
Where my own optimism doesn’t sway, I always just point to the sheer dominance of Google search, and merely ask, “What’s taking it down?”
So without hesitation, I would affirm InvestorPlace contributor Laura Hoy’s forecast that GOOGL stock “will blow past $1,000.”
Shares were trading around $955 when that article was posted, so the $1,000 mark itself was less than 5% higher. As we know, Google’s parent eventually reached that target — last week, in fact — but has since ceded it, and fallen back farther, to $945 today.
But a clear breach of and sprint past the $1,000 mark is just as foregone a conclusion today as it was then. Not only is Alphabet blessed with an untouchable search business and a number of projects with explosive growth potential.
The so-called “FANG” stock complex — which includes Facebook Inc (NASDAQ:FB), Amazon.com, Inc. (NASDAQ:AMZN), and Netflix, Inc. (NASDAQ:NFLX) — have been mired in weakness. A Friday-Monday correction has been followed by unconvincing price action, then devolved into another sharp off day on Thursday. GOOGL stock itself is off more than 2%, and as of this posting, was accelerating lower.
Yes, Alphabet ultimately failed the $1,000 mark once. But that in conjunction with the collapse of the other FANG stocks warrants the question: “Is the king of search really feeling the heat?”
An Overlooked Generational Hurdle
Is Google’s reign over? Hardly. Should investors still take this selloff seriously? Absolutely.
From 10,000 feet, market participation since the Great Recession hasn’t recovered to pre-crisis levels. CNBC and other business media outlets have been complaining about this dynamic for quite some time. Despite the fact that we’re in one of the longest bull markets in American history, we don’t have the investment volume to show for it.
I can hear someone out there say, “boo hoo!” But I don’t think this trend of rising market value and declining volume should be ignored. It’s not just the technical problem of volume not confirming rising price action (though there is that); rather, I’m talking about demographics and how that might negatively impact GOOGL stock.
We can expect participation loss. Baby boomers are retiring in droves, and with that comes changing financial priorities. Naturally, millennials now represent the biggest workforce demographic, yet they simultaneously refuse to invest in the markets.
Some of this has to do with the fact that they simply can’t afford to invest.
I argue that younger people who do buck their demographic trend prefer to do so with names they use or understand. Alphabet is a prime example, as are the rest of the FANG stocks.
But if millennials experience a massive hit to their portfolio because of FANG volatility, they’ll be discouraged to invest further — overall, yes, but especially in the stocks that ultimately burned them.
At least in the short haul.
We must appreciate that the younger millennials witnessed firsthand the trauma the Great Recession caused to their family members. If the “skeptical generation” were to suffer the same fate, the participation dearth will worsen.
The Silver Lining for GOOGL Stock
With all that said, I’m still very optimistic about Alphabet down the road.
My main source of confidence is Google’s domination of various aspects of the internet. It’s not just the leader in internet search, but it’s one of the world’s biggest advertising powers, its YouTube streaming video portal boasts more than a billion users, and its Android operating system was included on 432 million smartphones sold last quarter alone.
Meanwhile, its Waymo self-driving car technology increasingly looks like one of the favorites in the clubhouse. Driverless cars are the future — it’s not just tech companies, but innovative auto disruptors like Tesla Inc (NASDAQ:TSLA) and even established automakers like General Motors Company (NYSE:GM) that are in on the game.
The company’s earnings are expected to pull back this year as Alphabet invests toward the future, but then is expected to rebound with a nearly 20% ramp-up in profits next year. That’s on top of high-teens growth on the top line this year and next.
Doubt has crept into GOOGL stock time and time again over the past few years, and it takes its lumps with the rest of Big Tech when the market suddenly goes risk-off.
That’s the silver lining in selloffs like these. They’re great and uncommon opportunities to buy one of tech’s best stocks at a discount.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
