What's up with Alphabet's shares?
Alphabet's Shares Soaring Today: Unraveling the Reasons
Alphabet's shares saw a boost of approximately 2.7% on Friday, and there are a couple of reasons for this uptick. First off, the Bureau of Economic Analysis released its latest report on the personal consumption expenditures price index, or PCE, showing a cooler-than-expected inflation rate in February.
Secondly, Alphabet's Chief Financial Officer, Ruth Porat, sent a memo to employees outlining more cost-saving measures the company was planning to implement.
So what's the deal?
Investors these days are keeping a close eye on tech companies cutting costs, especially in the face of the Federal Reserve raising interest rates and a slowing U.S. economy. Companies like FAANG (Facebook, Amazon, Apple, Netflix, and Google - Google being Alphabet's primary entity) have been accused of overhiring and overspending during the pandemic.
With investors on edge, announcements of cost-cutting measures tend to soothe their worries. Alphabet, which was previously seen as less inclined to cut costs, has started to take measures in that direction. In January, the company announced layoffs of 12,000 employees.
On Friday, Porat followed that up by sharing more cost-saving initiatives with employees. These include cutting back on snack bars and cafeterias, and using an internal software tool to find less expensive service providers for hardware and software. While these measures might sound minor, they can add up to significant savings.
The decrease in inflation, as shown in the Feb PCE report, seemed to give a boost to stocks across the tech sector. Decelerating inflation often means lower long-term interest rates, which can help boost the present value of a company's future earnings, particularly for growth stocks like Alphabet.
What now?
Alphabet's shares have seen a rollercoaster ride these past few months, following the rest of the tech sector. However, the company seems to be making all the right moves in 2023, by trimming costs in non-essential areas and investing in Bard, its ChatGPT competitor.
We'll soon get a glimpse of Alphabet's search revenues in an age of ChatGPT, as the company reports its Q1 results, which cover the first full quarter since the generative AI chatbot was introduced in late November. Investors will be waiting with bated breath to hear what Alphabet's top brass have to say about these developments.
If Alphabet can navigate these challenges successfully, its share price might still look like a bargain, trading at just 23 times earnings.
Investors are closely monitoring tech companies that are cutting costs due to the Federal Reserve raising interest rates and a slower U.S. economy. Alphabet, in response, has implemented additional cost-saving measures, such as reducing snack bars and cafeterias and using an internal tool to find cost-effective service providers, which could lead to significant savings.
With the Bureau of Economic Analysis reporting a cooler-than-expected inflation rate in February and decelerating inflation potentially leading to lower long-term interest rates, investing in growth stocks like Alphabet might still be a valuable proposition.
