Alphabet had a powerful Q2 with solid revenue and earnings gains, yet the stock was down 4%.
Alphabet (NASDAQ:GOOG) stock was down near 4% on Wednesday despite the tech giant’s strong second-quarter earnings.
Revenue for the firm climbed 14% within the quarter to $84.7 billion, beating estimates of $84.3 billion. Net income rose 28% to $23.6 billion, while Alphabet’s earnings per share rose 31% to $1.89 per share, beating estimates of $1.85 per share.
The cloud business, which investors have been watching closely, also enjoyed a powerful quarter, topping $10 billion in revenue for the primary time. Alphabet pulled in $10.3 billion in revenue from the cloud business, up 29% year-over-year.
Moreover, revenue climbed 11% to $73.9 billion on the Google search and promoting side of the business. Google Search alone, the biggest segment of Alphabet’s income, saw revenue jump 14% to $48.5 billion.
Nonetheless, the markets perceived some weakness in YouTube ad sales, which were up 13%, but fell in need of revenue estimates. Promoting on the Google network was also down 5% year-over-year to $7.4 billion.
“Our strong performance this quarter highlights ongoing strength in Search and momentum in Cloud,” said Sundar Pichi, Alphabet CEO.
“We’re innovating at every layer of the AI stack. Our longstanding infrastructure leadership and in-house research teams position us well as technology evolves and as we pursue the various opportunities ahead.”
The disappointing sales numbers for YouTube and Google Network ads could have caused a few of the selloff on Wednesday, however the larger and more influential segments of the business performed well. Nonetheless, the first reasons the stock price fell had nothing to do with earnings.
High valuations a difficulty
All the key indexes were down on Wednesday, led by the Nasdaq Composite, which was off some 475 points, or 2.6%. A number of this needed to do with Tesla’s (NASDAQ:TSLA) subpar Q2 earnings, as deliveries dropped 5% and earnings plummeted 45% year-over-year, worse than estimates.
This likely dragged tech stocks down, including Alphabet, despite its decent numbers.
But there’s also the difficulty of valuations. Some experts have been predicting a correction, which is taken into account To be a drop of not less than 10% within the markets, as stocks have turn into overvalued. Tesla had been far overvalued, with a P/E ratio of 63 and a forward P/E of 99. This isn’t sustainable, based on Tesla’s declining sales and earnings.
Looking more broadly, the P/E ratio of the Nasdaq is 32, which is higher than average, and the inflation adjusted Shiller P/E ratio is at 35, the very best since 2021, just before the market began to crash.
This could possibly be a part of that correction, mainly in large caps and tech stocks. But when that happens, there’s a silver lining because it could present good buying opportunities.
Incidentally, Alphabet isn’t amongst those tech stocks which can be overvalued. It has a P/E of 26 and a forward P/E of just 24.
Today’s selloff looks like opportunity to purchase Alphabet stock, which has a median price goal of $200 — 14% higher than its current price.