The CNBC Investing Club downgraded Alphabet to a rating of 2 from 1 after Wednesday's results and cut its price target to $350 from $400. The club still likes the Cloud business, but wants a lower valuation and better AI mode monetization before it buys again.
Alphabet's soft search results weighed on other internet names, such as Amazon, as the S&P 500 and Nasdaq moved lower Thursday. Post-earnings sell-offs in several technology stocks, including Alphabet, ServiceNow and Fortinet, pressured both indexes.
Club downgrades Alphabet but keeps the position
The club does not want to exit the position despite Wednesday's disappointing results, because it likes the momentum in the Cloud business. Still, it is not ready to buy the dip. It is downgrading its rating to 2, from 1, and trimming its price target to $350 from $400.
The club would be buyers again if the stock's price-to-earnings multiple falls from around 19x today to the 17x-18x range, based on estimates it is more confident Alphabet can meet. It also wants to see improved AI mode monetization rates that better support the transition from traditional Search.
Other tech names slide too
ServiceNow's two-penny-per-share earnings miss and mixed outlook took down other enterprise software names. Fortinet's disappointing outlook hit other cybersecurity stocks, although the club cautions against reading too much into it.
Semiconductor stocks fell after Microsoft trimmed its full-year capital expenditure outlook due to delays at third-party compute providers. As tech sold off, money rotated into other areas of the market. Defensive stocks like healthcare and consumer staples, and interest rate-sensitive groups like real estate and utilities, outperformed.
Source: CNBC
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