3 Reasons Alphabet Stock Is Underperforming, Yet Resilient

Alphabet Inc’s GOOGL GOOG plans to invest $7 billion in offices and data centers in 19 states this year represents revenue growth optimism, according to BofA Securities.

The Alphabet Analyst: Justin Post maintained a Buy rating for Alphabet, while keeping the price target unchanged at $2,440.

The Alphabet Thesis: The company’s latest investment plan is estimated to result in net headcount additions of 26,000 and $28 billion in capital expenditure in 2021, Post said in the note.

The analyst mentioned three reasons for the stock’s recent underperformance:

• The addition of more cyclical stocks in investor portfolios. This trend could continue “as GDP growth accelerates in 2021 and interest rate fears rise,” Post noted. He added, however, that Google continued to be well-positioned for revenue growth, “while many large-cap Internet company revenues are decelerating.”
• Management’s comments on increasing their investment spend and possible margin contraction by 2022. “Investors will need to learn to live with some y/y margin pressure, but hopefully see the benefit of a double-digit top line growth opportunity,” the analyst wrote.
• Continued negative regulatory commentary from the U.S. and EU. “We think a break-up of Google, as reported in the media, would be a value creating event,” he said.

GOOGL Price Action: Shares of Alphabet are up 0.63% to $2,034.17 at the time of publication Friday.

GOOG Price Action: Shares of Alphabet are up 0.78% at $2.052.05 at the time of publication Friday.

(Photo: C. Zerwinski Via Unsplash)