The 2022 tech wreck wiped out 40% of Alphabet’s (NASDAQ:GOOG) equity value. However, 2023 has brought GOOG stock within 3% of where it was two years ago.
The company behind Google is now worth $1.33 trillion, making it the third most-valuable of the “Cloud Czars” behind Apple (NASDAQ:AAPL) at $2.6 trillion and Microsoft (NASDAQ:MSFT) at $2.1 trillion.
But neither of the two leaders are as dependent on their cloud data centers as Google, which mainly offers free services and re-sells access to its cloud.
What investors need to ask now is whether the Cloud is still worth that premium, whether the service revenue can keep expanding, and how productivity will hold up as management clamps down on spending.
Is the Golden Age Over?
Google’s “Golden Age,” the years where management could do no wrong and engineers were treated like gods, ended abruptly in January. This came after CEO Sundar Pichai . Additionally, the company followed that up with demands to return to the office, , and with .
In response, its Japanese employees . British employees staged . The layoffs amounted to , but employment has still since 2017.
wrote CNN, summing up the reaction. The company’s old mantra of now seems quaint and passe’.
Google’s Three Big Challenges
Despite its comeuppance, GOOG stock still faces huge challenges.
Let’s start with antitrust suits. There’s the big one against its . There’s a suit against its Google Play store . There’s also an Indian suit against . Indeed, Google now has fewer programmers and , many of them former Department of Justice attorneys.
The biggest challenge comes from Microsoft in the form of like ChatGPT. Bots that generate full text responses have created an AI “arms race” which Google’s “Bard” .
Then there’s TikTok. The Chinese social networking site has entered the . Efforts in the U.S. to ban it have placed a spotlight on the use of Google itself as
Is Google Overvalued?
For investors there’s only one question.
On April 4, Alphabet was selling for nearly 23-times earnings, . Its market cap was about 4.8-times revenue. The company pays no dividend, but has $131 billion in cash and securities. Its long-term debt of $14.7 billion is relatively miniscule.
Google services like search and YouTube are It’s still losing money in Cloud, partly due to the costs of GMail, which remains free. The $1.9-$2.3 billion cost of layoffs will all be recognized in the March quarter, to be reported April 25. In its December quarter, profits were down by about one-third, so expect more bad news.
That said, Google retains enormous strengths. Its cloud network is now worth over $112 billion. Android in smartphone market share. And generative AI systems should save Google enormous amounts of money, providing lucrative business opportunities, even if the company starts out behind.
What To Do with Google?
I bought some GOOG stock last year while it was falling, and am still down on that investment. My guess is that, after earnings, you’ll be able to get shares for less than their current price.
But the Cloud Era hasn’t ended. With AI, it’s entering a new phase. Through the rest of this decade Google stock will do fine. It’s one of those things you buy rather than trade.
On the date of publication, Dana Blankenhorn held long positions in AAPL, GOOGL, and MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
