Why Alphabet Stock Fell 17% in February

Alphabet (GOOG) (GOOGL) is a major player in the technology sector and ranks among the most valuable companies globally. However, like other stocks, it faces certain macroeconomic risks. In February, Alphabet's stock dropped significantly—by 17%—due to a combination of disappointing revenue results and broader economic concerns that affected the overall market. This decline corresponded to a loss of over $300 billion in market value for the company.

The stock's decrease began early in the month following its fourth-quarter earnings report and continued towards the end of February amid a general market sell-off.

Underwhelming Q4 Earnings

For the fourth quarter, Alphabet reported a 12% increase in revenue, reaching $96.47 billion. However, this was below the expected $96.67 billion. Notably, this growth rate also lagged behind that of its competitor Meta Platforms, indicating that Alphabet may be losing ground in the digital advertising market. Additionally, the revenue growth marked a deceleration compared to earlier periods.

On the earnings side, Alphabet's earnings per share increased from $1.64 to $2.15, slightly surpassing the consensus estimate of $2.13.

While Alphabet does not provide comprehensive guidance, it appears investors were skeptical about the company's plans to significantly raise capital expenditures from $52.4 billion in 2024 to $75 billion in 2025. This investment is primarily intended for developing artificial intelligence infrastructure—a strategy that has yet to translate into substantial revenue gains.

Towards the end of the month, Alphabet's stock tumbled further, mirroring a broader market decline driven by concerns within the technology sector. Reports about Microsoft cancelling several data center leases and a drop in Nvidia stock, despite its strong earnings report, led to fears that AI stocks had become overvalued.

External factors also weighted heavily, including tariff threats which negatively impacted investor sentiment. Additionally, Alphabet's announcement of job cuts in its cloud division could point towards slow growth, even if it may improve profitability.

Future Prospects for Alphabet

Being a leader in digital advertising, Alphabet is highly attuned to global economic conditions and business spending. In the event of an economic recession, companies often cut back on their advertising budgets first, which could lead to further stock fluctuations in response to macroeconomic developments.

Although Alphabet is vying to maintain leadership in the AI arena, there are ongoing concerns about its search engine's dominance being challenged by competitors like OpenAI.

However, many of these apprehensions might already be reflected in the stock price, which currently appears undervalued at a price-to-earnings ratio of around 21.5. Provided that Alphabet can sustain its growth trajectory, there could be potential for the stock to appreciate moving forward.

Alphabet, Stock, Earnings