Is Google A Buy Amid Regulatory Headwinds, Artificial Intelligence Race?

Amid rising fears of a U.S. recession, how resistant is Google stock to a business downturn versus other technology companies? That’s a key question for investors eyeing GOOGL stock.

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Despite mounting headwinds, shares in Google-parent Alphabet (GOOGL) have climbed nearly 7% in 2023. The Nasdaq Composite has done better, advancing 13.5%.

Fourth quarter earnings for Google stock disappointed. And, Google’s internet search business faces a new threat.

Google aims to counter Microsoft‘s (MSFT) investment in artificial intelligence startup OpenAI by making its own generative AI tools available to software developers.

Google Stock: DoJ Files Antitrust Charges

The U.S. Department of Justice on Jan. 24 filed antitrust charges against Google, leaving open the question of whether the search giant will have to divest some of its ad business in order to satisfy regulators. The DOJ claims Google’s dominance in digital advertising harms competition.

The lawsuit marks the DOJ’s second antitrust case versus the internet giant in just over two years. The DOJ in October 2020 filed an antitrust lawsuit charging that Google has monopolized internet search and search-related advertising. That case is scheduled to go to trial in September.

Google on Jan. 20 said it will cut 12,000 jobs, or roughly 6% of its global workforce, adding to a growing wave of layoffs among U.S. technology companies. The layoffs follow a hiring spree at the company.

TikTok’s growth is pressuring YouTube, which aims to monetize its own short video format.

“With more macro headwinds evident, we believe the debate centers on how quickly Google management can rein in expenses to prevent margins from reverting to 2019-2020 levels,” KeyBanc Capital Markets, analyst Justin Patterson said in a note to clients.

Meanwhile, lawmakers and courts are closing in on fundamental changes to Section 230 of the Communications Decency Act. The law has shielded internet companies from liability for content on their sites for nearly three decades.

The internet giant completed a 20-for-1 split for shares of Google-parent Alphabet after the market close on July 15.

In the long run, however, the GOOGL stock split could pave the way for the tech giant to enter the Dow Jones Industrial Average. Google stock could be more attractive to retail investors.

Due to its huge cash holdings, Google stock has shrugged off three fines totaling $9.3 billion levied by the European Union on antitrust grounds.

Boosting Ad Business Through E-Commerce

Alphabet aims to boost its advertising business through e-commerce-related internet search. At the same time, it hopes to chip away at Amazon.com‘s (AMZN) dominance in product search.

Google’s internet search business will hold up better than other advertising formats, such as social media, analysts say.

Google has rolled out the Performance Max advertising platform. It automates buying across YouTube, internet search, display, Gmail, maps and other applications. Performance Max lets advertisers manage campaigns across all Google ad inventory. Advertisers that use the tools convert more shoppers into buyers, Google says.

The big picture: Google stock this year faces more difficult year-over-year growth comparisons in 2023 as the coronavirus emergency fades.

In a near-term boost for its advertising business, Google has delayed phasing out internet cookies to 2024. Also, in early 2022, Alphabet said it expected a “meaningful increase” in 2022 capital spending, reflecting investments in computer servers in internet data centers and construction of office space.

Google Stock: Artificial Intelligence Prowess

Most investors still know the company as Google, even though the internet search giant reorganized as holding company Alphabet in 2015. The restructuring move separated Google’s core internet advertising business from so-called moonshots, such as autonomous vehicles and the Verily Life Sciences unit.

In March 2022, Google spun off its quantum computing technology group as a separate company.

Google stock’s strength in artificial intelligence spans digital advertising, the Google Cloud Platform, YouTube and consumer hardware products. GOOGL stock is just one artificial intelligence stock to watch.

At a Google developers conference in mid-May, the company demonstrated how it uses AI tools in a wide range of applications, including Google Workspace, Google Maps, virtual reality, and voice-based search.

After a long run, GOOGL stock has dropped out of the IBD Leaderboard. The Leaderboard is IBD’s curated list of leading stocks that stand out on technical and fundamental metrics.

Big Tech Stocks Face Regulatory Headwinds

With the Android mobile operating system built into devices sold worldwide, the Play Store has been a revenue growth driver.

A federal judge ruled in September 2021 that Apple (AAPL) must allow mobile app developers to steer consumers to outside payment methods. Google’s policies also are under scrutiny.

Google in 2021 said service fees at its Play Store would drop to 15% from 30%. The move reduced revenue.

Under Alphabet Chief Executive Sundar Pichai, Google has improved transparency. Google began disclosing cloud computing financial metrics with its fourth-quarter report in fiscal 2020. But the cloud business has yet to turn a profit. And YouTube’s profitability still remains a mystery.

U.S. Recession Looming For Google?

Google reported Q4 earnings and revenue that missed Wall Street targets amid slowing growth in internet search advertising, YouTube ads and cloud-computing services.

In the December quarter, earnings tumbled 31% to $1.05 per share. The company reports earnings under generally accepted accounting principles, also known as GAAP. Google recorded a $1.49 billion loss on equity investments in the quarter.

Meanwhile, gross revenue rose 1% to $76.05 billion.

Analysts had predicted Google earnings of $1.18 per share on gross revenue of $76.2 billion.

Meanwhile, advertising revenue fell 3% to $59.04 billion, missing estimates of $60.58 billion.

In addition, advertising revenue at Google’s YouTube unit fell more than 7% to $7.96 billion. Analysts had estimated YouTube ad revenue of $8.22 billion, but even that would have been down nearly 5%.

Google said cloud-computing revenue rose 32% to $7.32 billion, missing estimates of $7.44 billion. In the September quarter, cloud revenue rose 38%.

The company repurchased $15.4 billion in Google stock in the December quarter.

Waymo Autonomous Vehicle Business

A key question for investors is how much should Google’s self-driving-car project Waymo and “Other Bets” such as the Verily Life Sciences unit figure into valuation.

In early 2018, some Google stock analysts projected Waymo’s long-term valuation in a range of anywhere from $75 billion to $125 billion. Expectations for autonomous vehicles, though, have been sharply lowered.

Waymo in 2021 raised $2.25 billion in funding from outside investors. including private equity firm Silver Lake, the Canada Pension Plan Investment Board and Abu Dhabi’s Mubadala investment arm.

While Google did not disclose Waymo’s valuation in the funding round, reports said it was only $30 billion. It could be lower now.

Google Stock: Cloud, Hardware, Security Acquisitions

Another question is the performance of Google’s hardware business. It’s battling Apple in smartphones and Amazon in smart-home appliances.

Also, Google’s acquisition of smartwatch maker Fitbit closed in January 2022. The $2.1 billion purchase should help Google make a push into the health and fitness market, analysts say.

Google’s cloud computing business, meanwhile, faces tough rivals in Amazon and Microsoft. Google brought in Thomas Kurian, a former Oracle (ORCL) executive, to improve performance in the corporate market.

Bulls say Google Cloud Platform is taking share as it focuses on security, open source software and data analytics.

In 2019, Google purchased data analytics firm Looker for $2.6 billion in cash. Santa Cruz, Calif.-based Looker’s analytics platform uses business intelligence and data visualization tools.

More acquisitions to boost Google’s cloud business could be coming, analysts say. Google acquired cybersecurity firm Mandiant (MNDT) for $23 per share in an all-cash $5.4 billion deal.

Google Stock: Is It A Buy Now?

GOOGL stock jumped 65% in 2021. But in 2022 Google shares dropped 39%.

Meanwhile, Google’s Relative Strength Rating is only 18 out of a best possible 99, according to IBD Stock Checkup. The best stocks tend to have an RS rating of 80 or better.

Google stock owns an Accumulation/Distribution Rating of D-minus. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading.

Shares hold an IBD Composite Rating of 33 out of a best possible 99. The best growth stocks have a Composite Rating of 90 or better.

As of Feb. 20, some technical ratings for Google stock have weakened.

GOOGL stock is not in a buy zone amid volatility in the tech sector. It needs to forge a new base to be actionable.

Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and 5G wireless.

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