Last week, Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) soared, thanks to a flurry of positive AI-related news. As a result, Alphabet stock hit a new all-time closing high when it ended the day on April 11 at $159.41 per share.
Although shares have pulled back some, they remain just a few dollars below this newly hit high-water mark. That said, while sentiment for the Google and YouTube parent’s shares has been very bullish as of late, whether this sentiment holds is another question.
Despite the current optimism, don’t assume that it’s a continued smooth ride ahead for this “Magnificent Seven” component. Another round of turbulence could be just around the corner for shares.
While not a clear-cut sign to stay away completely, it may be warning not to get too hog wild about GOOG right now.
Alphabet Stock and the Latest AI Rally
A few months ago, a lack of “AI progress” was a big problem. So far this month, however, a lack of “AI progress” has clearly not been an issue for GOOG.
As mentioned above, there has been not just one, but several developments suggesting that the company is moving forward when it comes to capitalizing on this secular growth trend.
On April 9, Barron’s reported on several of these developments, including the company’s unveiling of in-house designed data center CPUs, the launch of a new AI-powered text-to-video application, as well as the launch of AI-powered add-ons to its existing suite of subscription-based software products.
Given this spate of AI-related news, it’s no shock that Alphabet stock surged in response, all while other “Magnificent Seven” components with high AI exposure have delivered a relatively less stellar performance over the past few trading days.
Unfortunately, while a pleasant surprise for GOOG investors, this rally has started to reverse course. Worse yet, the rally may prove ultimately short-lived. After the stock’s latest run-up, investors also may be looking for an excuse to sell. Alphabet’s next earnings release is next week. The market may decide to use this event to take profit.
Primed for a Possible Post-Earnings Plunge
Sure, take a look at some of the latest earnings previews for Alphabet stock, and you may think that the ingredients are potentially in place for a post-earnings rally.
For instance, as Morningstar analyst Michael Hodel argued on April 15, the market will be focused on updates about Alphabet’s gen AI endeavors, its cost-cutting efforts, as well as on digital ad demand trends.
However, while Alphabet could in theory wow the market in all three of these areas, don’t assume it’s a lock. Per Hodel, the company could end up reporting some more downbeat updates.
For instance, updates could show that the digital ad market rebound is slowing down. After last year’s efficiency efforts, Alphabet may be tapped out of cost-reduction opportunities.
If such negatives crop up, it may not matter if Alphabet unveils further positive AI-related news. Again, with shares already rallying on AI bullishness, the market may be looking to take profit.
Hence, that’s why it’s very possible investors pounce on any negative aspect to the earnings release, resulting in a post-earnings plunge for GOOG.
Of course, with this possible plunge, comes a silver lining. Even a moderate move lower could create a buying opportunity.
Bottom Line: Wait to Buy on After-Earnings Weakness
As before, we maintain an upbeat but not “back up the truck” bullish view on GOOG. In past coverage, we have talked about how the company still has much to prove in the area of generative AI. Not only that, Alphabet is contending with other headwinds, like regulatory scrutiny.
As the company continues to show that it’s one of the top AI contenders, feel free to maintain an existing position in shares. If you’ve yet to buy GOOG, however, take heed of our aforementioned warning about possible volatility ahead.
With the strong possibility that Alphabet stock tumbles after earnings, wait for such weakness before buying.
Alphabet stock earns a B rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.