Will Alphabet Stock Skyrocket on February 4th?

For three quarters running, Alphabet (Nasdaq: GOOG) (Nasdaq: GOOGL) | GOOG Price Prediction has surprised and delighted its shareholders with estimate-beating earnings reports. On Tuesday, February 4, Google’s parent company will attempt to “do it again” when it reports fiscal Q4 2024 earnings.

Shares of the tech giant are up 42% already over the past 52 weeks, a performance nearly twice as strong as the rest of the S&P 500. Can Alphabet keep the good news coming? Let’s find out.

Q3 recap

When last we checked in on Alphabet, at the end of fiscal Q3, the company had just reported 15% year over year quarterly revenue growth to $88.3 billion. Google Cloud led the charge higher, growing 35%, while the much larger Google Services unit grew 13%.

Net income grew 34% at Alphabet. With a little help from stock buybacks, earnings per share growth was an even better 37%, with Alphabet reporting $2.12 per share.

Q4 preview

Management hasn’t given investors firm guidance for what to expect in Q4’s report, in terms of either sales or earnings. CEO Sundar Pichai did say, however, that his company has “extraordinary … momentum,” which sounds pretty promising.

But up on Wall Street, analysts aren’t quite so sure about that. When Alphabet reports on Tuesday, they’re expecting the company to report no less than $2.13 per share in earnings. If they’re right, that would make for a solid 30% improvement over last year’s Q4. However, it would represent a slowdown in earnings growth from Q3.

Similarly, analysts see Alphabet reporting $96.7 billion in Q4 revenue. That would be better than Alphabet did last quarter, and 12% better than the company’s performance in Q4 last year as well. But again, it would be a slowdown from last quarter’s 15% revenue growth.

Will Alphabet stock skyrocket this week?

There are two ways to look at this somewhat less than “extraordinary” forecast. On the one hand, analysts seem convinced that Alphabet’s business slowed in Q4. On the other hand, the lower bars they’ve set could make it easier for Alphabet to clear the hurdles, and report an “earnings beat” on Tuesday.

If you’re an investor in Alphabet, you should probably be crossing fingers right now and hoping the stock does in fact clear the hurdles and beat earnings, because from a valuation perspective, I’m afraid Alphabet is anything but a cheap stock.

Alphabet shares cost 26.5 times trailing earnings, which may not seem too horribly expensive given long-term growth estimates of 17%. However, Alphabet has been spending like a proverbial drunken sailor on its Cloud business lately, building it out to support the AI capabilities that are fueling Cloud’s growth. The bad news here is that capex spending has reached such a high level now, that the company’s free cash flow backs up less than 60% of its reported net income, and Alphabet stock costs 45 times annual free cash flow.

At valuation levels this extreme, even “beating earnings” might not be enough to make Alphabet stock skyrocket on Tuesday.