Publication date: April 3, 2024

Three months ago, we wrote about Alphabet. The market was very enthusiastic at the time. This prompted us to cover the stock. Our conclusion on January 2, 2025,  was a golden future but a short-term decline from $197 to around $150. Alphabet reached this level on March 31. Time for an opportunity update.

First, read the January 2, 2025, article on Alphabet here.

What is the current situation at Alphabet?

Alphabet came out with its numbers on Feb. 4. The company posted strong financial results in 2024. Revenue increased 14% to $350 billion, while net profit rose 36% to $100.1 billion. This growth was mainly driven by investments in artificial intelligence (AI), which led to improvements in search advertising and an increase in user engagement.

In the fourth quarter of 2024, Alphabet reported a 12% increase in revenue to $96.5 billion. The net profit in the quarter was $26.5 billion, up 28% from the previous year.

The results are at the upper end of expectations. Despite these positive results, CEO Sundar Pichai announced that Alphabet will invest about $75 billion in AI capabilities by 2025, which may affect profitability in the short term. Alphabet's share price fell more than 7% immediately after the figures. This shows the still-present fear among investors about Alphabet's role in the AI era, TikTok's competition for YouTube. In addition, the ongoing competition case in the US is in play. A judge ruled that Google used illegal practices to maintain its dominance in Internet search, which could lead to the possible breakup of the company.

What is Alphabet's analyst expectation?

Analysts have varying expectations for Alphabet in 2025. Some are positive because of strong performance in core businesses and investments in artificial intelligence (AI). J.P. Morgan maintains a December 2025 price target of $232. The investment bank expects 11% growth in search ad revenue and sees potential in non-advertising segments such as Google Cloud and YouTube subscriptions. On the other hand, there are concerns about Alphabet's significant AI investments. The company plans to invest up to $75 billion in AI infrastructure by 2025, which is higher than financial market expectations. This has led to price target cuts by UBS and others to $191.

However, analysts remain divided on the balance between AI investment and short-term profitability. Still, a majority of fundamental analysts have the stock at Buy with an average price target of $216. The majority of technical analysts are less positive and have Alphabet on Sell.

What is our expectation of Alphabet?

As we wrote earlier, the expectation is positive, with a price target of $225.
Alphabet is suffering from the reigning fear in the market this year. However, the company is making significant progress in its extensive range of products and services. We do not see the potential split of operations due to the competition case as a risk to overall long-term profitability.

The general sentiment in the financial markets has been uncertain and anxious since mid-February, putting pressure on share prices. The Nasdaq could fall as much as 10 percent further, as far as we are concerned. This will obviously negatively affect Alphabet's share price as well.

We expect Alphabet, from its current level of around $150, to be a nice long-term addition to the portfolio. For the short term, because of the overall fear and uncertainty, we should expect a possible run-up to $132. At that level, the price has corrected 35% in a nice uptrend.

Conclusion

Alphabet is a financially strong company developing extensively in the Tech sector. There are challenges, but we do not see major risks to long-term profitability. The fearful sentiment around the stock and around the financial markets puts the price at an attractive level to consider putting the stock in the portfolio. The level around $150 was previously indicated and remains a possible buying opportunity. New is the second possibility at $132. This level may arise once fearful sentiment reaches its climax.
The price target remains unchanged at $225.

April 28, Alphabet will release its first quarter figures.

Disclaimer: Investing involves risk. Our analysts are not financial advisors. Always consult an advisor when making financial decisions. The information and tips provided on this website are based on our analysts' own insights and experiences. They are, therefore, for educational purposes only.