Stock Analysis & Ideas

Here’s Why Analysts Love Alphabet Stock (NASDAQ: GOOGL)

Story Highlights

Technology stocks roared ahead after October’s lighter-than-expected CPI report. With that, Alphabet stock has the potential for a year-end “tech-tonic” shift to the upside.

It’s not every day that you’ll see consensus on Wall Street. However, the experts are rallying around Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) as a potential winner, not just in 2022’s final quarter but throughout 2023 as well. I don’t blame them for their enthusiasm, frankly, and I’m feeling quite bullish on Alphabet stock too.

Alphabet is a well-known American search engine, tech gadget, and cloud computing business. GOOGL shares declined sharply in value soon after Alphabet released its third-quarter earnings report. This was understandable, as the company’s revenue growth slowed, and Alphabet’s net income was unimpressive compared to the year-earlier quarter’s result.

Some traders who dumped their GOOGL shares are probably already regretting their hasty decision, though. As we’ll see, analysts have a lot of love for Alphabet in spite of the company’s disappointing data points. Besides, an imminent central-bank policy shift, if it happens, could make profiting with Alphabet stock as easy as A-B-C.

A Favorable Inflation Report Should Buoy Tech Stocks, Including GOOGL

Folks who panic-sold their GOOGL shares after Alphabet’s earnings release could instead have held on, and already they’d be close to breakeven. That’s because the market is anticipating a shift in the landscape. Specifically, a favorable Consumer Price Index (CPI) print means that technology businesses like Alphabet can conduct their business operations with more confidence.

Tech stocks in general, including GOOGL stock, jolted higher after the market caught wind of an October CPI reading that came in lighter than expected. Economists had braced for annualized inflation to come in at 7.9%, but the actual figure was 7.7%.

Remember, one of the main reasons tech stocks declined in 2022 is because the fear of an aggressive Federal Reserve prompted traders to dump the large-cap tech stocks. These stocks are considered “cyclical,” meaning that they thrive during a robust economy but struggle when the economy weakens.

Alphabet Stock Could Switch from a Laggard to a Leader

Alphabet is one of those “FAANG” stocks (the “G” stands for Google, which is controlled by Alphabet) that led the bull market since mid-2020. Now, inflation is elevated, and the Federal Reserve has led the economy into a down cycle – and as a result, Alphabet has a highly attractive trailing 12-month P/E ratio of 19.4x.

If the Federal Reserve does actually pause interest-rate hikes or start cutting rates, the economic cycle could quickly shift back into high gear. Then, GOOGL stock could be a FAANG leader – a growth and value stock at the same time.

Bear in mind that Alphabet has deep value as a technology giant in multiple niche markets. While many people recognize Alphabet as the parent company of the Google search engine, the company is also unapologetically becoming a cloud-focused business. In that respect, Alphabet is faring well as the company’s Google Cloud revenue grew from $4.99 billion in 2021’s third quarter to $6.868 billion in Q3 of 2022.

Alphabet is even delving into cyber-defense and threat intelligence, as the company recently acquired cybersecurity business Mandiant. As Mandiant joins and enhances Google Cloud, Alphabet is only growing bigger and diversifying into more high-conviction tech-market segments.

Is GOOGL Stock a Buy or Sell?

Here’s where the rubber really meets the road. GOOGL has a Strong Buy consensus rating based on 29 unanimous Buy ratings. That’s right – all of the surveyed analysts agreed that Alphabet shares are a Buy or other equivalent rating such as Overweight.

This is rare and highly encouraging. GOOGL stock ended last week at $96.41, and it was on an upward trajectory due to the soft CPI data. So, where do the experts on Wall Street see the stock going over the next 12 months? The average Alphabet price target is $129.71, which implies 36% upside potential – not too shabby for a stock that many traders divested because they didn’t like the company’s earnings results.

Conclusion: Should You Consider Alphabet Stock?

Clearly, the analyst community is bullish on GOOGL stock. Ultimately, however, you have to make your own investment decisions. Alphabet stock is likely to move much higher as it presents a deep value but also has strong growth potential if and when the economy recovers. With inflation easing from its peak, it shouldn’t be too long before the Federal Reserve returns to easy-money policy – and you can get ahead of the curve with a position in GOOGL stock.

Disclosure

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