Alphabet and Microsoft: Are we entering ‘overbought’ territory?

Alphabet and Microsoft: Brokers recommend a ‘buy’ but are we entering ‘overbought’ territory? By Karl Rodia

 
“Alphabet stock (GOOGL) is on an uptrend, and heading into quarterly results, is testing fresh all-time highs. Alphabet is expected to benefit from resilient ad spending and adjustments to the company’s product offering, particularly the execution of a subscription model for YouTube.

Expectations are for earnings to rise 64% from the corresponding period last year. The jump in earnings is forecast to come from a 12% lift in revenues to $71.05 billion and an improvement in operating margins over the year. The strength of Alphabet’s YouTube and advertising revenue streams is expected to offset disappointing growth in the company’s cloud offering. However, Alphabet lags behind its peers in marketing its cloud product and optimising it for AI, driving underperformance compared to other mega-tech giants.

The broker community remains bullish on Alphabet’s stock, boasting a consensus buy rating. However, it is worth nothig that the consensus target price is at a premium to the market value of $157.64.

Investors will search for signs Microsoft is monetising AI hype

 
Meanwhile, Microsoft (MFST) regained the title of ‘Wall Street’s most valuable company’,  as its share price rose to all-time highs and its market capitalisation exceeded $US3 trillion. The move comes as investors back the company as the market’s leader in artificial intelligence, courtesy—in large part—due to its acquisition of a significant share of OpenAI.

Investors will watch Microsoft’s Q2 results for signs that it is executing its AI strategy and monetising the hype surrounding the burgeoning technology. Analysts forecast a nearly 20% rise in earnings from a year earlier. The markets will focus on Microsoft’s Azure cloud business as its primary growth engine and barometer for the success of its AI offering. Revenue for the segment is tipped to rise 17.5% to $US25.29B, with operating margins expected to expand as the company rolls through its cost optimisation programme. The analyst community is almost universally bullish on Microsoft shares but the consensus price target, at $429.84, is a premium to current market valuations.”
 
Kyle Rodda is Senior Market Analyst at Capital.com