Recently, I have made the case that shares in Google parent Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) may be due for a pullback. Despite improved sentiment over the past few weeks, mostly because of temporary, macro-related factors, too many negatives remain on the table with GOOG stock.
While it is not for certain, there is an upcoming event that could cause a serious price decline for the tech giant’s shares. That would be Alphabet’s upcoming quarterly earnings release. While the company has yet to announce its Q1 2023 earnings date, it’s probably at the end of this month.
There are several reasons these results, alongside updates to guidance/outlook could elicit a negative reaction from the market. Existing challenges are likely to continue. More recent changes may intensify. After a pullback, this could keep the stock in an extended slump.
| GOOG | Alphabet | $104.28 |
On Shaky Ground
Changing hands today for around $106 per share, it may appear as if the situation with Alphabet is improving. However, make no mistake. GOOG’s still on shaky ground, as the stock’s recent strong performance has been because of events not directly related to the company.
In mid-March, GOOG stock moved higher as investors cycled into big tech stocks, which were perceived to be a safe harbor amid the banking crisis. As the weeks progressed, GOOG continued to trend higher, again, mostly for macro-related reasons.
Promising inflation data helped to raise hopes the Federal Reserve would soon end raising interest rates, and possibly begin lowering them. However, the boost from these developments is fading. Alphabet continues to make little progress when it comes to issues currently affecting its performance.
With this, it’s clear that Alphabet shares are on shaky ground. If overall market sentiment dips back to bearish, the stock could reverse course, but like I mentioned, what could really cause GOOG to tumble is this month’s earnings release, which could bring the company’s underwhelming fundamentals back into focus.
Why Shares Could Slide Post-Earnings
Admittedly, this FAANG component may report better-than-expected results for Q1 2023. Since the last quarterly earnings release, sell-side analysts have walked back estimates. This could cause an earnings beat for the quarter, adjusted of course for onetime charges associated with Alphabet’s recent round of mass layoffs.
Still, even if the company reports an earnings beat, this may not translate into a rally for GOOG stock. The results themselves, and more importantly, any outlook/guidance that management provides, could reiterate that Alphabet is far from out of the woods with a myriad of issues.
The digital ad market continues to be sluggish. It remains uncertain whether a recovery will take shape this year. The tech sector slowdown keeps having a negative impact on growth for Alphabet’s Google Cloud computing segment. Worst of all, the company’s efforts to play catch up with Microsoft (NASDAQ:MSFT) in artificial intelligence is still a work in progress.
If management cannot convey that things are moving in the right direction with these concerns, GOOG could resume moving in the wrong direction.
Bottom Line
Don’t get me wrong. I do not believe that Alphabet is on the verge of re-hitting its 52-week low. At worst, a post-earnings drop for GOOG could merely mean a move into the $90s per share.
However, following this, returns for the stock could remain underwhelming compared to other tech names barring any game-changing developments. For example, monetization progress with its Bard A.I. platform, or from reporting big profitability improvements, thanks to its recent cost-cutting initiatives.
A lot remains out of Alphabet’s control. An earnings recovery hinges mostly on a tech sector recovery. There are much better opportunities out there to make this wager, such as by buying Microsoft or Apple (NASDAQ:AAPL).
With shares vulnerable in the near-term, consider it best to hold off on GOOG stock.
GOOG stock earns a D rating in Portfolio Grader.
On the date of publication, Louis Navellier had a long position in GOOG and MSFT. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
