Gene Munster: Alphabet’s 8% Drop Is an Overreaction

  • Alphabet’s (GOOG, GOOGL) Q4 earnings showed revenue of $96.47 billion, slightly below the $96.56 billion expected, with EPS at $2.15, beating the $2.13 forecast; overall revenue grew by nearly 12% YoY.
  • YouTube ad revenue outperformed expectations at $10.47 billion against $10.23 billion, while Google Cloud revenue fell short at $11.96 billion compared to the $12.19 billion anticipated.
  • Gene Munster emphasized that market overreaction to Google Cloud’s variability was overshadowing positive aspects like the search and YouTube growth, suggesting the stock drop was an overreaction.

google

Gene Munster of Deepwater Asset Management provided his insights on Alphabet’s (GOOG, GOOGL) recent earnings on CNBC’s ‘Fast Money’, addressing the significant 8.8% drop in Alphabet’s stock price after hours. Munster highlighted that while Alphabet pointed to foreign exchange (FX) issues and the leap year’s impact as headwinds for the March quarter, the real concern for investors seemed centered around the variability in Google Cloud’s growth. He noted that despite these concerns, the cloud segment’s growth might be around 27% rather than the expected 30%, which he believed was an overreaction by the market.

Munster emphasized that the market’s focus on Google Cloud was overshadowing positive developments in other areas like search and YouTube, where growth or unexpected upsides were observed. He pointed out the expansion of AI overviews from 300 million to over a billion users as a positive sign, countering fears that generative AI might undermine Google’s search dominance. Additionally, Munster reassured that Alphabet’s significant increase in capital expenditure (CapEx) to $75 billion, up from $51 billion, was a strategic move to bolster AI and infrastructure, which he believed would pay off in the long run given Alphabet’s substantial cash reserves.

Addressing concerns about the return on this investment, Munster couldn’t guarantee outcomes but expressed confidence in Alphabet’s innovation capabilities, particularly in enhancing search quality amidst competition from services like Perplexity and GPT. He clarified that while there’s no explicit mention of capacity constraints in Q4, there’s an anticipated variability in Q1 due to data center availability, which indirectly suggests capacity issues. However, he maintained that the current market reaction to Alphabet’s earnings was excessive, suggesting the stock should only be “flattish” rather than experiencing an 8% decline. His analysis concludes with an optimistic outlook on the AI hardware sector, expecting more growth and investment from major players like Amazon, indicating a continued bullish stance on hardware-focused AI investments.

WallStreetPit does not provide investment advice. All rights reserved.

About Ari Haruni 471 Articles
Ari Haruni

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