Alphabet: A Profitable Strategy Even With A Slightly Down Stock Price

Summary

• Alphabet's Q1 revenue grew 12% YoY, with Google Cloud up 28%, though macroeconomic factors and AI investments are impacting free cash flow and analyst estimates.
• Derived from a DCF model and backed by a relative valuation, my Fair Value estimate is $193.4, about 23% potential upside from the current price ($157).
• Risks include trade war, DOJ accusations and Google Search competition, but even in a pessimistic scenario Fair Value would be $165.
• I own both shares and a bull Put Spread with options, which is proven to be a profitable strategy for a stagnant or even slightly decreasing stock price.

Article Thesis

I first covered Alphabet Inc. (NASDAQ:GOOGL, NASDAQ:GOOG) in November last year, with the stock at ~$164 and my base-case Fair Value estimate at $198 derived from a DCF (Discounted Cash Flow) model and backed by a comparison with peers, or with

Analyst’s Disclosure: I/we have a beneficial long position in the shares of GOOGL either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.