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After rallying by more than +38% this year, there are signs of cracks in the bullishness toward Alphabet (GOOGL). Among the 55 analysts that cover Alphabet tracked by Bloomberg, the stock has 47 buy ratings, the lowest in at least three years. While that still shows more bullishness for a company than many other stocks in the Nasdaq 100 Stock Index ($IUXX) (QQQ), it’s well below the unanimous approval the stock had a year ago.
Some investors are growing cautious toward Alphabet on concerns about the potential impact of an economic slowdown on advertising sales. Federated Hermes said, “Tech is going to be sensitive to corporate profits,” and that conditions are becoming more difficult in areas including consumer spending and company investment in growth.
Most recently, Alphabet has seen rare downgrades. In May, Loop Capital Markets cut the stock to hold from buy on concerns it will struggle to maintain dominance in internet search as people increasingly turn to artificial intelligence (AI). Last month, Bernstein downgraded Alphabet to market perform from outperform, saying the stock appears fairly valued. In addition, UBS last week downgraded the stock to neutral from buy, saying it saw better opportunities in Amazon.com (AMZN) and Meta Platforms (META).
After trading sideways in Q1, shares of Alphabet rallied sharply, climbing to a 14-month high last month after it started rolling out plans to integrate AI technology into its search engine. However, the stock’s momentum has recently slowed, and Alphabet was the worst performer of the top seven mega-cap technology stocks in June. Regarding valuation, Alphabet lags behind its rivals as the stock sells for about 19 times estimated earnings, compared to Nvidia (NVDA) at 49 times and Amazon.com at about 42 times estimated earnings.
Despite the decline in bullishness among some analysts, few are reluctant to sell Alphabet, given the company’s solid positioning and long-term growth potential. CI Roosevelt believes the company will overcome near-term headwinds and climb higher. Also, Piper Sandler on Wednesday boosted their price target on Alphabet to $140 from $128, saying the stock has room to grow as “the narrative that Google is losing in AI search dissipates.” In addition, Aptus Capital Advisors LLC said Alphabet remains a good longer-term bet as a “set-it-and-forget-it name for the next three to five years.”
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
