Alphabet Stock Tanks After Earnings: Should Investors Buy the Dip?

Shares of Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL) fell sharply last week, after the company released its latest quarterly results. The tech stock didn't quite hit a new 52-week low, but it is trading close to it.

Has the market overreacted, and could this be a great time to buy Alphabet, or could there be more of a decline to come for this top tech stock?

Image source: Getty Images.

It missed expectations and guided for higher capex

There wasn't a whole lot of positive news around Alphabet's stock when it reported earnings last week. While its revenue rose by 25% year over year for the September quarter, the company missed expectations on both its top and bottom lines, which is something it hasn't done for multiple years.

Revenue of $127.6 billion was well below the $128.2 billion that analysts were expecting, and the gap between adjusted earnings per share and expectations was even wider -- $2.67 vs $3.02. Meanwhile, the company anticipates capital expenditures to hit $200 billion this year, and rise to $300 billion next year.

An earnings miss combined with elevated spending effectively gives investors multiple reasons to be down on the stock, and thus a big drop-off after earnings shouldn't have come as too much of a surprise.

The tech stock is now down more than 10% since the start of the year, trading roughly around where it was this time last year.

Alphabet's stock looks attractive at its current valuation

Alphabet has an excellent business model that commands high margins and possesses plentiful growth opportunities in search, video streaming, artificial intelligence, and robotaxis.

How it performs during a single quarter is irrelevant in the grand scheme of things. The business itself is successful and highly profitable. It's the type of stock that investors can comfortably hold on to for the long haul.

Today, it's trading at a forward price-to-earnings multiple of around 18, which is based on analyst expectations. That's a great price, given that the average stock on the S&P 500 trades at about 19 times its future profit estimates. Alphabet is a growth beast and an iconic tech giant -- it's worthy of trading at a premium, not a discount.

Alphabet has a fantastic business, and with it trading at a low valuation, it makes for a terrific buy. It's hard to go wrong with owning one of the top tech companies in the world, especially with it looking undervalued right now.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.