What Happened?
Shares of online advertising giant Alphabet (NASDAQ:GOOGL) fell 5% in the morning session after markets tumbled, extending the weakness from the previous week as concerns over the ongoing trade war continued to spread. Over the weekend, President Trump fielded questions regarding recession worries on FOX News, calling the market struggle “a period of transition,” but that didn’t do much to calm investors. The sell-off was particularly pronounced in the tech sector, with the Nasdaq falling 3% into correction territory, while the S&P 500 also posted a 2% decline.
Separately, recent court documents revealed the DOJ (Department of Justice) wasn’t backing off in its investigation, which could lead to a potential breakup of the company. MoffettNathanson analysts believed the “saga will continue through the spring and into the summer until a final remedy ruling comes.”.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Alphabet? Access our full analysis report here, it’s free.
What The Market Is Telling Us
Alphabet’s shares are very volatile and have had 28 moves greater than 2.5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was about a month ago when the stock dropped 8.7% on the news that the company reported underwhelming fourth-quarter 2024 results. Its total revenue was in line and its Google Cloud revenue missed, spooking some investors who had high expectations.
Given the secular trends surrounding Google Cloud along with its long-term profit margin potential, it was increasingly a sharp focus of investors and the market. We note that Microsoft’s Azure division also posted worse-than-anticipated results, signaling the market was overly optimistic about cloud computing for Q4.
On the brighter side, advertising revenue slightly exceeded expectations, driven by strong contributions from both Search and YouTube. It was also encouraging to see Alphabet beat analysts’ operating income expectations.
In AI, the company earmarked $75 billion for capital expenditures in 2025—well ahead of Wall Street’s estimates. It also rolled out its latest AI model, Gemini 2.0, to the public, aiming to expand its reach and stay competitive with rivals.
Zooming out, we think this was a mixed quarter with areas of underperformance weighing on shares that had made 52-week highs right before this earnings announcement.
