Alphabet Inc. (NASDAQ:GOOG) Stock: A Buy After Q2 Earnings and Stock Correction?
With recent stock pullbacks and strong Q2 earnings, Alphabet (GOOG) shows significant upside potential. Dive into the financial metrics, growth opportunities in cloud and search, and why it could be an excellent buy right now | That's TradingNEWS
Alphabet Inc. (NASDAQ:GOOG) - Detailed Analysis on Stock Performance and Future Outlook
Strong Earnings Despite Pullback
Alphabet Inc. (NASDAQ:GOOG) has experienced a whirlwind in its stock price movement over the last few months. After peaking at an all-time high of $193.31 on July 10, 2024, the stock reversed course and endured a notable 23.33% decline in just under two months. However, this downward trend has begun to show signs of slowing, presenting what could be a tremendous buying opportunity for investors at current levels. As the tech giant heads toward its next earnings report, the critical question becomes whether the stock can establish a sustainable base that withstands future market risks.
Alphabet reported strong second-quarter earnings for FY2024, with an EPS of $1.89, beating consensus estimates of $1.84. Revenue came in at $84.74 billion, also surpassing expectations of $84.19 billion. Though the YouTube advertising segment slightly underperformed at $8.66 billion versus a forecast of $8.93 billion, the broader financial picture for Alphabet was positive. Google Cloud, a key growth area, recorded revenues of $10.35 billion, and net income rose to $23.6 billion, marking an impressive 28.26% year-over-year increase.
Key Financial Metrics from Q2 2024
In Q2 2024, Alphabet’s financial results highlighted several growth areas, with total revenues seeing an annualized increase of 14%. One of the most notable accomplishments was in Google Cloud, which surpassed $10 billion in quarterly revenue for the first time, a major milestone. Although total advertising revenue grew by a slightly lower annualized rate of 11.15%, the strength in search and cloud revenue segments provided enough positive momentum to overshadow any concerns. Traffic acquisition costs were $13.39 billion, below estimates of $13.54 billion, further contributing to Alphabet’s robust profitability.
The YouTube segment, which continues to face stiff competition from platforms like TikTok, still managed to post a 13.1% annualized growth rate, reflecting resilience in its core advertising model. With its forward price-earnings ratio at 21.5x, Alphabet remains attractively priced compared to other tech giants within the MAG-7 cohort, which includes names like NVIDIA Corp. (NASDAQ:NVDA) trading at 47.45x and Tesla, Inc. (NASDAQ:TSLA) with a lofty 95.12x.
Comparative Valuation Within the MAG-7
Looking at Alphabet's relative valuation, its forward P/E ratio of 21.5x makes it one of the most appealing stocks in the tech sector. This figure contrasts significantly with higher multiples seen in Microsoft Corp. (NASDAQ:MSFT) and Amazon.com Inc. (NASDAQ:AMZN), trading at 31.67x and 39.97x, respectively. Even Meta Platforms, Inc. (NASDAQ:META) is valued at 27.59x, further underscoring how attractive Alphabet's valuation remains.
Moreover, when assessing Alphabet on a forward price-to-sales basis, its current valuation of 5.83x seems particularly inexpensive when compared to NVIDIA (NASDAQ:NVDA), which sits at 26.33x, or even Microsoft (NASDAQ:MSFT) at 11.08x. This comparative undervaluation suggests that GOOG could have ample room for growth, especially considering the company's resilience and diversified business model.
Price Movement and Key Support Levels
From a technical perspective, GOOG’s share price has encountered significant resistance, with a major support zone found around $148.20, corresponding to the September 9th, 2024 lows. A breakdown of this support could see the stock heading towards $131.55, the March 2024 lows. On the flip side, should the stock rally post-earnings, the first level of resistance will likely be found at $170.30, coinciding with the 50% Fibonacci retracement of the previous declines from $193.31 to $148.20. The potential for upside in the mid-$190s is nearly twice the downside risk, making GOOG an attractive stock for bullish investors.
Cloud Growth – A Major Milestone
Google Cloud is fast becoming a cornerstone of Alphabet’s future growth. In Q2 2024, Google Cloud generated $10.35 billion in revenue, marking a 29% year-over-year increase. The cloud segment continues to gain traction as businesses increasingly adopt cloud infrastructure, with Alphabet’s AI-powered solutions playing a key role in driving this growth. Notably, the segment posted a profit for the first time, with an operating profit of $1.2 billion, reflecting an 11% operating margin.
This strong performance highlights Alphabet’s commitment to scaling its cloud operations, a key factor in its long-term growth strategy. Given the competitive landscape, particularly with Microsoft (NASDAQ:MSFT) Azure and Amazon Web Services (AWS), Google Cloud’s profitability marks a significant achievement and a critical milestone for the company.
Key Competitor Analysis
Comparing Alphabet to its MAG-7 peers, it becomes evident that GOOG holds a unique advantage in the digital advertising space while steadily gaining market share in the cloud segment. NVIDIA (NASDAQ:NVDA) continues to dominate the AI hardware space, but Alphabet’s dominance in search advertising and YouTube’s growing influence remain pivotal strengths. Additionally, Amazon (NASDAQ:AMZN) and Tesla (NASDAQ:TSLA) face higher valuation premiums, making Alphabet’s relatively low P/E ratio appealing for long-term investors.
Forward-Looking Growth and Risks
Despite its relatively attractive valuation, Alphabet does face risks, particularly regulatory scrutiny in both the U.S. and Europe. The U.S. Department of Justice’s antitrust lawsuit, accusing Google of monopolistic practices in search and search advertising, remains an overhang on the stock. Additionally, the European Union’s ongoing investigations could further weigh on investor sentiment. However, Alphabet’s diversified business model, strong earnings, and significant growth in cloud services provide a buffer against these external risks.
With YouTube continuing to face competition from TikTok, it will be essential to monitor how Alphabet adjusts its strategy to retain advertising revenue and grow its user base. Furthermore, the success of Google’s AI initiatives, particularly in cloud computing and content moderation, will be crucial for maintaining its competitive edge.
Conclusion: Is GOOGLE (NASDAQ: GOOG) a Buy, Sell, or Hold?
After a thorough review of Alphabet's Q2 2024 performance, it becomes clear that the stock’s recent pullback offers a compelling entry point for investors. Alphabet is currently undervalued compared to its tech peers and continues to deliver strong earnings growth. With robust performances in Google Cloud and search advertising, combined with a solid balance sheet, GOOG is well-positioned for future growth.
Investors should keep a close eye on YouTube’s advertising numbers and the regulatory environment, but given its diverse business segments and growing cloud revenue, Alphabet Inc. (NASDAQ:GOOG) presents a strong case for a buy recommendation at current levels.
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