Alphabet Stock Dip Is a Prime AI-Powered Buying Opportunity
2025.02.06 04:15
Alphabet (NASDAQ:), Google’s parent company, saw a February stock price dip, creating a compelling buying opportunity for investors. The move was driven by sentiment, not fundamentals, which have the company on track to grow in 2025. AI underpins growth, and because of the ramping investment, it will likely exceed expectations over the next few years. Alphabet aims to spend $75 billion on CapEx this year to build advanced data centers and AI infrastructure that will pay off in spades as time progresses.
Alphabet Ends 2024 With Momentum in All Segments
had a strong year, including Q4, when revenue increased by nearly 12%. The $96.5 billion reported revenue is shy of the consensus, but the miss is slim and offset by internal metrics revealing momentum in AI segments and a widening margin. Segmentally, Services, the largest segment, grew by 10% on a 10% increase in Advertising revenue. Cloud, the hyper-growth segment, increased revenue by 30%, with noted strength in infrastructure and generative services.
Margin news is equally good, with gross and operating margins improving more than expected compared to last year. The net result is a 500 basis point improvement in operating margin and leveraged 31%, 28%, and 31% increases in operating and net income and GAAP earnings. Contrary to the top-line weakness, GAAP earnings outpaced the consensus and will likely remain strong in 2025. AI aids growth in business demand and Alphabet’s operational quality.
The overshadowing detail is the guidance. Alphabet didn’t give specific guidance but noted two headwinds impacting results in Q1, FX conversion, and lapping leap year in 2024. The FX conversion issue will plague S&P 500 companies with international exposure in 2025 but is ultimately good for their businesses. The stronger U.S. dollar will aid demand for foreign goods and drive economic activity globally. As for leap year, it will impact reported results but has no bearing on fundamentals, which indicates momentum will continue to build in 205.
Alphabet’s AI Infrastructure Build-out Equals Value for Investors
Alphabet’s lean into AI infrastructure is clearly seen in the balance sheet highlights, which include reduced cash offset by increased property, total assets, and equity. Equity is up 15% yearly and is expected to continue to rise due to the cash flow. The company logged a negative cash flow year in 2024 but barely, with the deficit due to CapEx and the balance sheet being a fortress. The cash position is down compared to last year but still ample, and leverage remains low, with long-term debt down and running near 0.03x equity. Total liability, the more significant factor, is less than 0.5x equity, leaving the company in a robust financial condition.
Most analysts responded by lowering their price targets, but the sentiment is bullish. The reduced targets align with the pre-release consensus, which forecasts a 10% upside at the consensus. The outlier is Rosenblatt Securities, which raised its target and also aligned with the consensus, narrowing the range. The takeaway is that sentiment is firming around the consensus target of $210, and a move to new all-time high levels is likely in 2025.
The Technical Outlook: Alphabet’s Plunge Highlights Critical Support Level
Alphabet’s post-release price plunge shaved nearly 10% off the market value but highlights a critical support target. That target is the all-time high set in July 2024 and is potentially very strong. A move below this level could keep the market range bound or even send it into a reversal, which is unexpected. The likely scenario is a short to mid-length consolidation followed by new highs later this year. 
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