At the start of July, Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) was hitting new highs. Flash forward to now, and Alphabet stock has reversed course. If you’ve been following recent news, you can quickly answer the question “what happened?”
For one tech stocks have experienced a sell-off. Doubt and uncertainty about the generative AI growth trend has negatively affected mega-cap tech stocks across the board.
In light of this, it makes sense why GOOG continued to slide lower, after the company’s latest earnings release. Add in renewed worries related to competition, and it’s no mystery why shares are sharply moving in the wrong direction.
Yet while fairweather fans of this “Magnificent Seven” component may see recent price action as a good reason to jump ship, we’ve come to a far different takeaway.
Alphabet Stock and its Continued Sell-Off
With sentiment souring on big tech stocks starting on July 10, again it’s no surprise that investors went into Alphabet’s July 23 earnings release looking for reasons to sell rather than reasons to buy. For the June quarter, Alphabet beat on revenue and earnings.
Even so, investors weren’t too happy to hear about the company’s AI spending efforts. Last quarter, capital spending came in at $13.2 billion, $1 billion above forecasts.
This comes as the market becomes increasingly skeptical about the potential payoff from big tech’s buildout of its AI infrastructure.
With greater focus placed on this factor rather than on the latest bottom-line figures, not only did Alphabet stock sink after the earnings release.
Disappointment with GOOG’s earnings release, along with the latest earnings from another “Mag 7” stock, added fuel to the tech sell-off fire, as other “Mag 7” names took another big tumble in response.
Worse yet, it’s not just the prospect of higher spending that has investors becoming increasingly bearish.
On July 25, ChatGPT developer OpenAI announced the launch of a test version of its SearchGPT search engine product. This potentially game-changing news about a key competitor has in turn placed additional pressure on shares.
Why a Further Retreat is Not a Red Flag
The jury’s still out whether the SearchGPT announcement will continue to have an impact on Alphabet stock heading into August. The tech sector sell-off may not be over, either.
It may persist, if other “Mag 7” stocks report underwhelming results and guidance this earnings season.
Still, don’t assume that it’s time to get out of GOOG. For one, even if the sell-off continues, it’s not as if this stock is likely to re-hit its 52-week lows. If it does, back up the truck, as at those levels shares would be in deep value territory.
What’s more likely to happen is that the stock finds support at a much higher price level. Say, $150 per share, placing shares at a valuation of just below 20 times forward earnings.
In the coming quarters, sentiment for tech stocks could improve. Assuming that fears about AI spending are overblown, Alphabet could keep reporting earnings beats, shifting sentiment back to bullish.
As for the possible SearchGPT headwind? This too could prove to be a short-lived concern. At least, considering how it didn’t quite work out the last time a competitor tried to disrupt Google’s search dominance using the power of generative AI.
The Verdict: Get Ready to Pounce if GOOG Re-Hits $150
Until SearchGPT officially launches, and the initial results come in, it’s better to assume that OpenAI isn’t on the verge of eating Google’s lunch. Much like what happened in 2023, a cooldown in concern about Alphabet’s competitive edge may also serve as a booster for shares.
So, how far could GOOG climb, once the dust settles? As recently discussed, there may be a path for Alphabet to hit $300 per share within two years, thanks largely to the potential for further cloud computing and cybersecurity growth.
Considering this forecast, cashing out now may leave considerable upside on the table. If you want to buy in at today’s prices, no one’s stopping you.
However, if you choose to wait for additional near-term weakness, waiting for a return to $150 per share or less to double-down or initiate a position may be a better course of action.
GOOG stock earns a B rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
On the date of publication, the responsible editor did not have (either directly or indirectly) and positions in the securities mentioned in this article.
