Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG) The stock is losing ground on Wednesday. The tech giant’s stock was down 3.4% as of 10:30 a.m. ET, according to data from S&P Global Markets Insights.
Alphabet reported its second-quarter results yesterday after the stock market closed. Despite above-average sales and profits in the quarter, investors are selling their shares in response to the company’s guidance.
Alphabet’s Q2 Results Are Truly Fantastic
Alphabet reported earnings of $1.89 per share on revenue of $84.74 billion in the second quarter. At the same time, analysts on average had estimated the company would report earnings of $1.85 per share on revenue of $84.29 billion.
Even though the company’s stock price is down today, the company’s second quarter results were very strong, with most key segments delivering impressive performances. Overall revenue increased 15% year over year, after adjusting for foreign exchange rates, and the company’s operating margin reached 32% – up from 29% in the year-ago quarter and exceeding the 31% margin expected by Wall Street.
Alphabet’s Google Search and Others segment saw revenue increase about 14% year over year to $48.5 billion. The company’s cloud business also had another strong quarter of growth, with revenue up about 29% year over year to $10.35 billion. In addition to strong sales momentum across most of its segments, the company’s efficiency initiatives helped push diluted earnings per share up about 31% from the year-ago quarter.
Does the bearish reaction to forecasts create a buying opportunity?
While Alphabet’s second-quarter results were significantly better than Wall Street had anticipated, the company’s management made comments during its earnings call that sparked a spike in bearish sentiment. Third-quarter operating margins will likely come under pressure from higher depreciation and amortization expenses related to the company’s investment in artificial intelligence (AI) and other technological infrastructures.
While margins may be bumpy in the near term, the long-term trajectory suggests continued margin expansion for the company. Alphabet still expects operating margins this year to be up on a year-over-year basis, and the software leader is likely still in the very early stages of the AI revolution.
Alphabet now trades at about 23 times this year’s expected earnings, and the stock appears attractively valued given the company’s sales and earnings momentum. If you’re a long-term investor interested in building a position in the tech giant’s stock, today’s pullback appears to present an attractive buying opportunity.
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