To The Moon

Alphabet's Latest Earnings Report: Beat and Misses

Alphabet Inc. ( $Alphabet(GOOG)$ ), released its Q4 2024 earnings report, with mixed results that have left investors wary. The company reported total revenue of $96.47 billion, slightly below analysts' expectations of $96.56 billion. However, it posted earnings per share (EPS) of $2.15, surpassing the expected $2.13.

The segment-wise performance included a notable rise in YouTube ad revenue, which reached $10.47 billion, up from $8.9 billion in Q3 2024. Despite this, the Google Cloud segment generated $11.96 billion, missing the expected $12.19 billion. This mixed performance was accompanied by Alphabet's announcement of plans to invest a substantial $75 billion in capital expenditures for 2025, primarily focused on AI infrastructure.

Post-Earnings Stock Price Drop: Market Concerns and Reactions

The earnings report triggered a sharp reaction from the market, with Alphabet's stock falling by more than 9% in after-hours trading. Investors were particularly concerned about the company's significant increase in capital expenditures, which exceeded the expected $58 billion. This sudden surge in spending has raised questions about Alphabet's profitability, cash flow, and the effectiveness of the investments in AI infrastructure.

The market's reaction was further compounded by the underperformance of the Google Cloud segment. Despite the company's strong momentum in AI and other core businesses, investors remain cautious about the immediate impact on profitability and the uncertainty around returns.

Is the Immediate Reaction Justified?

From a strategic perspective, Alphabet's heavy investment in AI infrastructure is aimed at long-term growth and maintaining its competitive edge. The substantial capex is directed towards servers, data centres, and networking to support AI-driven innovations. While this move is strategic, it requires substantial upfront investment, and the returns may not be immediate.

Additionally, the emergence of cost-efficient AI models from competitors like China's DeepSeek has added pressure on Alphabet to invest heavily to maintain its market position. This has led to concerns about whether the heavy spending will translate into proportional growth and market share.

The immediate reaction, driven by short-term profit concerns, might overlook the bigger picture. Google's core businesses remain robust, and its dominance in search, advertising, and cloud computing provides a solid foundation for future growth. While the company's commitment to AI carries inherent risks, it also offers the potential for transformative breakthroughs that could generate significant returns in the long run.

Technical Analysis: What the Charts Say

From a technical perspective, Alphabet’s stock price drop below certain key levels suggests potential further downside risk. Here’s how the stock stands relative to key moving averages:

• 10-Day Moving Average: $194.86 (Broken)

• 20-Day Moving Average: $194.00 (Broken)

• 50-Day Moving Average: $185.06 (Still Above)

• 200-Day Moving Average: $173.36 (Still Above)

Key Technical Takeaways:

• The break below the 10-day and 20-day moving averages suggests short-term bearish momentum.

• The 50-day moving average at $185.06 is the next key test—if this breaks, a further slide to the 200-day moving average at $173.36 could be in play.

• Support Zones:

  $193.12 - $199.49 (Near-term support, tested in post-market trading)

  $188.83 - $189.79 (Critical support; a break could accelerate downside pressure)

  $180.76 (Last-resort support before major downside risk opens up)

• The RSI is around 63-64, indicating that the stock is not oversold yet. This could mean that there's still room for the price to fall further. However, Alphabet's beta is around 0.87-0.98, indicating that the stock's volatility is lower than the market average.

If Alphabet fails to hold above the $188.83 - $189.79 support range, the stock could continue to trend downward, potentially testing $180 - $185 shortly.

While the technical analysis suggests that there could be a further decline, it's essential to note that the post-earnings reaction might be an overreaction. Alphabet's management is confident about the opportunities ahead, and the company's long-term growth prospects remain intact.

Final Assessment: Dip-Buying Opportunity or Structural Weakness?

While Alphabet’s fundamentals remain strong, concerns over profitability and capital expenditures have shaken investor confidence. The post-earnings decline is driven by a combination of disappointment in cloud growth, fears of AI spending eating into margins, and technical breakdowns. If the stock holds key support levels, a rebound could be in play, especially if broader tech sentiment stabilizes.

For long-term investors, this could be an opportunity to buy into Alphabet’s AI-driven future at a discount. However, for short-term traders, caution is warranted as technical indicators suggest further potential downside if support levels don’t hold.

Bottom Line: While the market reaction is not entirely unwarranted, it may be exaggerated. Watching how Alphabet performs in the coming days relative to its support levels will be crucial in determining whether this is a temporary pullback or the start of a prolonged decline.

@TigerWire