History Says Alphabet Stock's 15% Pullbacks Have Usually Paid Off Within a Year

Alphabet (NASDAQ:GOOGL)(NASDAQ:GOOG) set a record close of $402.62 on May 13. As I write, shares sit near $344, about 15% under the high, even though the Google parent's revenue growth has sped up in each of the past two quarters.

The stock first closed over 15% below its May record on June 26. Its lowest close since then, about $318 on July 23, was the day after management lifted its capital spending forecast again.

This has happened before. Using daily closing prices of the Class A shares, I found 10 times from 2012 through 2025 when the stock first closed at least 15% under a record. In nine of them, shares were up 12 months later.

A brief dip this spring is too recent to score. It crossed that line on March 24, and the stock was at a record again a month later.

Is this pullback more like the nine or the one?

Image source: Getty Images.

Nine out of 10

The nine wins weren't all the same. In the year after the stock crossed the line in September 2020, it rose around 94%. The year after the February 2025 crossing saw a gain of about 78%. For all nine, the median gain was around 39%.

But three of the nine were small. Shares climbed around 5% in the year after the May 2014 crossing, about 9% after the one in February 2018, and about 11% after the one in October 2018.

Put another way, I'd lean on this pattern for direction much more than for size.

And then there's 2022. The stock first closed 15% below its November 2021 record on Jan. 25, 2022, at around $127. A year later, it was about $95 -- a 25% drop. Shares didn't close at a new record until January 2024.

What went wrong in 2022?

At the time of the crossing, the company looked strong, and a week later Alphabet reported its revenue grew 41% in 2021. Based on that year's earnings per share, the stock's price-to-earnings ratio was around 23 at the crossing.

The next 12 months went the other way. Alphabet's revenue growth slowed to 10% in full-year 2022, and fourth-quarter revenue climbed just 1% year over year. During the quarter, Google Search & other revenue dipped around 2% and YouTube ads revenue slid about 8%. Full-year operating income shrank about 5% to $74.8 billion, and earnings per share dropped 19% to $4.56.

At around $95 a year after the crossing, shares traded at about 21 times 2022 earnings, near where the valuation was at the crossing. Put another way, the stock's decline mostly tracked the drop in earnings.

This pullback looks more like the nine

Alphabet's revenue climbed 18% year over year in the fourth quarter of 2025. Showing how differently the business is behaving this time, growth sped up from there -- 22% in Q1 of 2026 and 24% in Q2, when revenue was $119.8 billion. Operating income rose 30% year over year in both of the past two quarters. And Google Cloud's backlog (revenue customers have committed to but that hasn't been recognized yet) passed $460 billion as of March 31 and reached $514 billion by June 30.

But all this growth costs a lot. Management lifted its 2026 capital spending outlook to a range of $195 billion to $205 billion in July, up from $180 billion to $190 billion earlier and $175 billion to $185 billion in February.

Free cash flow was negative $5.9 billion in Q2. And the company raised $49.6 billion in June by selling new shares. On the Q2 earnings call, CFO Anat Ashkenazi also said the spending will keep squeezing profits through higher depreciation expense.

This might matter a lot, because shrinking earnings are what sank the stock in 2022. If depreciation climbs faster than revenue for long enough, earnings could stall even as sales keep rising.

As for the price, Alphabet's price-to-earnings ratio using forecast 2027 earnings is around 23 -- close to the ratio of about 22 for Meta Platforms on the same basis.

In the end, I think this pullback has more in common with the nine than with 2022. What sank the stock that year was shrinking earnings. But Alphabet's operating income is still growing around 30% year over year. At this price, I think the stock is worth a look.

That said, management expects capital spending to climb significantly again in 2027. If higher depreciation starts dragging operating income down, the comparison with 2022 would get much closer.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Meta Platforms. The Motley Fool has a disclosure policy.