A couple of weeks ago, investors celebrated an overall rally due to the United States presidential election. However, a few days later, markets cooled off to show investors a potential rotation in themes, away from a potential resurgence in inflation and very quickly down to what might look like a recession. The camp is still divided between a recession and inflation comebacks.
Investors should position their capital wisely to navigate either scenario, increasing their chances of a favorable outcome. While the technology sector, with its rally and historical volatility, may seem appealing, one stock stands out today.
That stock is Alphabet Inc. (NASDAQ: GOOGL). Even though some would call it expensive based on the valuation multiples at which it trades today, its fundamentals and business model promise a better future and stability no matter which of the two scenarios (inflation or recession) plays out for the rest of the economy.
Reason #1: Why Google Stock Will Outpace Inflation Pressures
If the economy's outcome is inflation, then businesses as a whole, especially mid-sized businesses, will see their margins fall due to rising costs and think of ways to stage a recovery back to normal. To pull this off, a certain level of outsourcing and automation must occur.
This is where Google stock comes into play. It offers business solutions at manageable costs, from advertising to storage and customer relations. Then there’s the office and document management side of things, which directly competes with Microsoft Inc. (NASDAQ: MSFT) and its Office product line. However, Google does better with mid-sized businesses than with large corporates.
Knowing that the advantage of Google’s customer demographics is that it will act as a tailwind when and if inflation comes around since bigger corporations can easily diversify their costs through exposure to international markets and operations.
Reason #2: Google’s Value Proposition Outshines Competitors, Even in a Recession
Now, what about a recession? Wouldn’t that be bad for everyone? Well, not for Google, especially when investors follow the same thesis and theme that helps the business throughout an inflation theme. The reason is that, as a recession comes and business activity falls, margins will be as crucial as ever for businesses to stay alive.
That also calls for an affordable and efficient proposition from Google services, where mid-sized businesses can call on Google to provide stable margins and keep their businesses running accordingly during rough periods.
While these two reasons are valid fundamentally, that’s only a portion of the picture. Investors need to check with Wall Street analysts and other market participants to determine whether these beliefs are being accepted and adopted widely.
Wall Street's Outlook on Google Stock: Analyst Sentiment and Market Perspectives
Price action is one of the most obvious indicators of whether markets are bullish or bearish on a stock. Google stock now trades at 91% of its 52-week high, showing investors that momentum is present for the company, and for good reason.
Then investors can check the Wall Street ratings for more guidance, particularly from those at Pivotal Research, whose analysts have recently reiterated their Buy ratings on Google stock and, this time, placed a $225 price target on the name as well.
To prove these targets right, the stock would need to rally by as much as 28.4% from where it trades today, not to mention a new high for the year. And if valuation multiples were the only thing that mattered, then short sellers would be happy to raid this “expensive” name, but that’s not the case today.
Google’s short interest declined by 6.2% in the past month alone, signaling bearish capitulation in the face of the upside inherent in the business model today. Ultimately, institutional investors were happy to pick up where these running bears left off.
Those at Geode Capital Management decided to boost their Google stock holdings by 2% as of November 2024, bringing their net position to a high of $22.1 billion today and giving investors another sign of further momentum to come shortly for Google, no matter which of the two economic scenarios end up playing out.
