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Asset Watch
Tuesday, February 11, 2025
After reporting resilient fourth-quarter earnings, Alphabet sold off over fears of slowing cloud revenue and rampant AI investments. In a nutshell: the company spent more than $52 billion in AI cap-ex in 2024, and guided as much as $75 billion for 2025 – roughly $15 billion more than expected.
Add it all up, and Alphabet became a victim of the risk-off mood simmering on Wall Street. But, does the stock offer value at these levels?
Pivotal Research analyst Jeffrey Wlodarczak said on Feb. 5 that “Slower-than-expected growth at the key future revenue driver for the company [in cloud revenue] and much higher [capital expenditures] to drive that growth is a tough combo, which is why the stock is, reasonably, selling off.
“Our view is Alphabet remains attractively valued, with frankly great assets, but investors will need to be patient as management needs to continue to deliver in search and YouTube and prove out that the decelerating cloud growth was one-off.”
All in all, Wlodarczak has a buy rating and a $225 price target.
While Alphabet ended the Feb. 7 session down by more than 10% from its recent high, technical support is approaching. The horizontal white line depicts how price support is near $182, while trendline support is near $179.
Both should help slow the recent sell-off and the bottom could be in if investors’ tariff and inflation fears calm over the next several days.
Aligning alongside $179 trendline support, the 100-day moving average (the blue line) could provide additional assistance if Alphabet’s correction continues. The only caveat is there is a gap that fills if the stock hits $176.
Not all gaps fill, but it’s worth monitoring if Alphabet suffers a short-term breakdown.
The main drivers upending the stock market are tariffs, inflation, and their potential impact on interest rates. And with U.S. nonfarm payrolls showing hot wage inflation on Feb. 7, bonds sold off once again.
However, this should be a short-term problem, and historically, the bulls have been rewarded when buying Big Tech corrections. Consequently, it will likely take another rate shock to push Alphabet below $176.
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