Is Alphabet a Long-Term Buying Opportunity After Recent Declines?

Key Points

• Alphabet's stock remains down 17% from its 52-week high due to antitrust concerns and AI competition, despite a recent 6% recovery.
• Ongoing legal challenges continue to pressure Alphabet, including the threat to its search deal with Apple and AI competition from OpenAI's ChatGPT.
• Analysts remain optimistic, with a Moderate Buy rating and projecting a 26% upside, supported by Alphabet's strong earnings and AI advancements.

Alphabet NASDAQ: GOOGL, the tech giant behind Google, has seen a recovery in recent days, with shares climbing nearly 6% over the past five days. However, despite this recent bounce, the stock remains down nearly 17% from its 52-week high, weighed down by market rotation and ongoing antitrust concerns.

While other members of the "Magnificent Seven" have rebounded sharply, trading near all-time highs alongside the broader market, Alphabet’s stock continues to lag. This raises the question: Is the recent decline a sign that Alphabet has entered discount territory, presenting a long-term buying opportunity for investors? Let’s take a closer look.

Legal Woes and AI Competition

Alphabet's stock has faced headwinds from legal battles and the growing threat artificial intelligence poses. ChatGPT, a product of OpenAI, has emerged as a potential competitor to Google’s dominant search engine, sparking concerns about Alphabet’s ability to maintain its significant market share.

Additionally, legal challenges have added pressure. A federal judge ruled in August that Google violated antitrust laws by using unfair tactics to dominate the internet search advertising market. Central to this case is Alphabet's $20 billion annual payment to Apple NASDAQ: AAPL to ensure Google remains the default search engine on iPhones. As the case progresses, a second trial phase will determine the consequences, including the potential disruption of the Apple search deal. Although Google is expected to appeal, the uncertainty looms.

Adding to its legal troubles, Yelp has filed a lawsuit against Google, accusing the company of abusing its local search and advertising market monopoly. Another antitrust case, known as the “DoubleClick trial,” is underway. This stems from Google’s 2008 acquisition of digital advertising firm DoubleClick, and the Department of Justice claims that Google’s dominance in the digital ad market has harmed advertisers and content creators alike. A ruling in this case is expected by the end of 2024.

Meanwhile, artificial intelligence competition continues to intensify. OpenAI recently announced testing for SearchGPT, further challenging Alphabet’s position in the market. While Google has made significant strides in AI, including its Gemini large language model (LLM) and chatbot integration into its search engine, questions remain about whether Google is leading or lagging behind AI startups like OpenAI.

Analysts Still See Upside

Despite these challenges, analysts remain optimistic about Alphabet's long-term prospects. The stock currently holds a Moderate Buy rating based on 37 analyst recommendations, with a consensus price target suggesting a potential 26% upside.

Alphabet’s ongoing push into AI positions the company as a significant player in the space. Additionally, the stock’s current valuation appears attractive, with a P/E ratio of 22.9 and a forward P/E of 18.42, especially given the nearly 17% decline from its highs. Projected earnings growth of almost 14% for the year further supports the case for Alphabet as a value opportunity.

Alphabet also continues to deliver strong financial performance. In its most recent earnings report on July 23rd, 2024, the company posted earnings per share (EPS) of $1.89, surpassing analysts’ expectations of $1.85. Revenue came in at $84.74 billion, significantly higher than the estimated $70.60 billion, further demonstrating Alphabet’s ability to outperform.

Alphabet’s Recent Dip: A Buying Opportunity for Long-Term Investors

While Alphabet faces significant legal challenges and rising competition from AI, the stock’s recent decline could present a compelling buying opportunity for long-term investors. The company’s strong earnings, attractive valuation, and position in the growing AI space suggest potential upside, even as legal uncertainties persist. For investors with a slightly elevated tolerance for risk, Alphabet’s current dip may represent a rare opportunity to invest in one of the world’s most powerful tech companies at a discount.