Alphabet: Time to Take Profits, Buy, or Wait for a Pullback?

Key Points

• Alphabet has surged 76% off its 52-week lows and now trades in overbought territory, with its RSI recently topping 80.
• While fundamentals remain strong, chasing the stock here could carry elevated risk in the short term.
• Long-term growth drivers, such as Waymo and Google Cloud, reinforce Alphabet’s bullish thesis.

Alphabet NASDAQ: GOOGL has staged one of the most impressive rebounds in the market this year. After lagging behind many of its tech peers and broader indexes for much of the first half of 2024, the stock has flipped the script. Today, GOOGL is up 76% from its 52-week low, 45% over the past quarter, and more than 30% year-to-date.

That rally has rewarded patient investors who bought the dip, but now it also raises an important question: Is it time to trim current positions and wait for lower prices before buying or re-entering?

A Historic Opportunity Has Played Out

For several months, Alphabet was trading at historically low earnings multiples compared to its long-term average. At the same time, the company retained its dominant position in digital advertising, search, and AI. For long-term investors, it was an opportunity to scoop up shares of a tech giant at a discount.

Fast forward to today, and that valuation gap has essentially closed. Alphabet’s sharp re-rating came on the back of stellar Q2 earnings and a shift in narrative. Concerns over regulatory risks and competitive threats, once considered headwinds,  have eased, helping fuel renewed confidence.

Signs of Overheating

Despite the improving outlook, investors may want to pause before adding fresh capital at current levels. The technical picture suggests the stock is overheated. Alphabet’s Relative Strength Index (RSI) has been hovering above 70, now in overbought territory.

The RSI topped 80 days ago, a level not seen since 2023. The stock followed up with a pullback into its 50-day moving average before resuming its uptrend.

That type of cooling-off period is typical when a stock gets stretched. It doesn’t negate the long-term bullish thesis, but it does suggest that buying here could mean chasing at the tail end of a short-term move. For existing shareholders, this is often the moment to consider trimming positions or locking in some gains.

Where Might a Pullback Land?

The $210–$200 zone stands out as a long-term area of support. While a pullback of that magnitude from current levels might be unlikely, it’s not impossible in a volatile market. More realistically, the $230 area, which aligns with a prior gap and the news-driven breakout following a favorable antitrust ruling, appears to be the first key level for potential buyers to watch.

From a risk-reward standpoint, waiting for a reset in that area could offer a more attractive entry point than buying into current strength.

Beyond the Chart: Fundamentals Still Strong

Even if the stock is stretched technically, the fundamentals remain robust. Alphabet’s core businesses, including search, advertising, and Chrome, continue to grow steadily. However, its expanding growth drivers make the story even more compelling.

Take Waymo, Alphabet’s self-driving unit. The company recently launched “Waymo for Business,” a program that allows corporations to offer employees robotaxi rides in cities such as Los Angeles, Phoenix, and San Francisco.

Early partners include Carvana, the online used-car platform. This is Alphabet’s first coordinated push to capture corporate demand, potentially unlocking new commercial applications for its autonomous technology.

Meanwhile, Google Cloud takes a differentiated approach in the increasingly competitive AI landscape. Instead of chasing mega-deals like Oracle’s $300 billion arrangement with OpenAI, Google Cloud focuses on the “next generation” of companies. By offering cloud credits, AI stack access, and technical support to startups like Loveable and Windsurf, Alphabet is betting that capturing tomorrow’s unicorns early will yield outsized returns.

As COO of Google Cloud, Francis deSouza noted, Google’s “no compromise” AI stack, spanning hardware, models, and infrastructure, provides customers with flexibility and enterprise-grade performance, an edge in winning long-term cloud loyalty.