Google Stock Drop: Why This Could Be a Smart Buying Opportunity

1. Market Overreaction: Google’s stock is down 15% due to AI spending and regulatory concerns.

2. Strong Growth: Revenue rose 13%, and Google Cloud grew 26% despite market fears.

3. AI Advantage: Gemini 1.5 and Google’s data network provide a long-term edge.

4. Waymo Potential: 180,000 paid rides per week show major upside in self-driving.

5. Undervalued Stock: Trades cheaper than Microsoft and Apple, making it a strong buy.

Introduction: The Recent Selloff

Google's stock has dropped more than 15% from its all-time high after a weaker-than-expected earnings report and concerns over AI spending. Investors worry that the company is spending too much, especially with its $75 billion budget for AI and cloud infrastructure. On top of that, lawsuits and regulatory pressures are adding to the uncertainty. But history has shown that when strong companies face short-term pessimism, they often turn out to be great long-term investments.

Understanding the Market’s Concerns

Many investors believe Google’s huge spending on AI may not lead to enough future profits. Some also worry that competitors like OpenAI and Microsoft are moving ahead in the AI race. Meanwhile, Google is dealing with multiple antitrust lawsuits, which could force it to make big changes to its business. And with cloud growth slowing down, investors are feeling uneasy. But if you dig deeper into the numbers, the situation isn't as bad as it seems.

The Bullish Case: Why This Is an Overreaction

Google’s business is still growing at an impressive rate. In Q4 FY24, revenue increased by 13% year-over-year to $86.3 billion, and Google Cloud revenue jumped 26%. Even better, Google Cloud’s profit margins improved significantly, showing that AI investments are already paying off. While investors focus too much on short-term spending, they’re missing the bigger picture—Google is setting itself up for long-term success. This kind of overreaction from the market is what creates great buying opportunities.

GOOGL ( ▼ 0.69% ) forward EV/EBIT

The Competitive Edge: AI, Cloud, and Data Dominance

Google has a major advantage because of how AI is built into its entire business. Its latest AI model, Gemini 1.5, stands out because it can handle multiple types of data—text, images, and video—better than its competitors. Google Cloud’s 26% annual growth proves that AI-powered services are in high demand. Another big strength is Google's massive amount of user data from Search, YouTube, and Android, which constantly improves its AI. This network effect makes it hard for other companies to catch up.

Waymo: The Hidden Gem in Google’s Portfolio

Waymo, Google’s self-driving car unit, is a big opportunity that most investors are ignoring. Unlike Tesla, which still relies on human drivers for safety, Waymo already runs fully autonomous ride services in several cities. It provides 180,000 paid rides per week—far more than its competitors. If it captures even a small share of the ride-hailing market, it could generate billions in revenue. Yet, the market isn’t giving Google credit for this potential, which means investors today are getting this hidden asset almost for free.

Valuation: Google Is the Cheapest Among Big Tech

Compared to other big tech companies, Google’s stock is a bargain. It trades at just 22 times its expected earnings, below its five-year average of 25.4x. Microsoft, for example, trades at 33.1x, and even Apple—despite slower growth—trades at 29.4x. Google’s EV/EBITDA ratio of 12.1x also shows it is undervalued. While investors worry about AI costs, they fail to see that these investments will drive future growth. At today’s price, Google offers a rare chance to buy a world-class business at a discount.

Conclusion: A Long-Term Opportunity

Short-term fears are keeping Google's stock down, but its long-term outlook remains strong. AI innovation, cloud growth, and underappreciated assets like Waymo make this a company with huge potential. For investors willing to ignore the short-term noise, this dip is a chance to buy one of the most powerful tech companies in the world at a discount. If you have any questions or thoughts, feel free to send us an email—we’d love to hear from you. And if you found this article useful, consider sharing it with a friend who might find it helpful as well.

Happy investing!
Josh

The information is provided for educational purposes only and does not constitute financial advice or recommendation and should not be considered as such. Do your own research.