Alphabet (NASDAQ:GOOGL), Google’s parent company, has officially entered bear market territory, with shares now down more than 20% from their February all-time high.
For context, a correction is when a stock or index drops 10%, but it’s considered to be in a bear market once it has fallen 20% or more from its peak, which is exactly where Alphabet finds itself.
The tech giant has erased nearly a year’s worth of gains, trading at levels last seen in early 2024. This decline has been fueled by macroeconomic factors, sector-wide weakness in tech stocks, and disappointment over Alphabet’s latest earnings report.
Investors have been particularly focused on rising AI-related expenditures, which have surged across the tech sector. While companies like Alphabet continue to invest aggressively in AI capabilities, the market has become less forgiving of high spending, especially when near-term payoffs remain uncertain.
With these concerns weighing on sentiment, the big question is whether this recent decline represents a buying opportunity or a warning sign of more pain ahead.
Earnings Disappointment Shook Investor Confidence
Alphabet’s earnings report in early February fell short of the market’s lofty expectations. In the weeks leading up to the announcement, shares had surged to a new all-time high as investors anticipated another quarter of strong revenue growth.
However, the results didn’t quite deliver. Revenue fell slightly below expectations, snapping a long streak of consistent outperformance. Although the company improved its margins, investors were unsettled by its higher-than-expected forecasted expenditures, particularly in AI infrastructure and cloud expansion.
This has become a recurring theme for major AI players. While tech giants continue pouring billions into AI development, the market has grown increasingly cautious about how long it will take for these investments to yield tangible profits.
In Alphabet’s case, the post-earnings price reaction suggests that investors are becoming less patient than they were last year.
Analysts Still See Upside Potential
Despite recent struggles, many on Wall Street remain optimistic about Alphabet’s long-term potential. Just yesterday, KeyCorp reiterated its Overweight rating and issued a new $202 price target, suggesting more than a 25% upside from Tuesday’s closing price.
KeyCorp’s analysis points to Alphabet’s continued revenue growth, improved cost efficiencies, and dominance in digital advertising and cloud computing. Even in a tough macro environment, the company remains highly profitable and continues to strengthen its competitive position in AI-driven services.
While the broader market is perhaps favoring more defensive plays right now, analysts argue that Alphabet’s pullback has created an attractive entry point for long-term investors.
Is a Bottom Forming? The Technical Picture
From a technical perspective, Alphabet is flashing signs of being oversold. Its relative strength index (RSI) is sitting at 32, a level that often precedes exhaustion in selling pressure. Historically, when Alphabet reached similar RSI levels, it saw meaningful bounces in the following weeks.
Additionally, the MACD is nearing a bullish crossover, a signal that momentum could shift in the coming sessions. If buyers step in at these levels, it could mark the start of a stabilization phase for the stock.
Of course, technical indicators alone do not guarantee a reversal. If the broader market selloff deepens, Alphabet could face additional downside pressure before finding a solid floor.
Alphabet Stock-Time To Buy?
Alphabet’s recent steep decline has brought the stock back to more attractive valuation levels. The long-term investment case remains strong, with a price-to-earnings ratio of just 20, record revenue prints, and improving margins.
Analysts continue to see upside, and technical indicators suggest a potential near-term bounce. However, market sentiment remains fragile, and investors should be prepared for continued volatility in the short term.
For those willing to take a longer view, this pullback could present a compelling buying opportunity before Alphabet’s AI investments begin to deliver meaningful returns.