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There hasn’t been much in the way of good news for Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) investors in September. Amid a tech sector selloff, GOOG stock slumped more than 13% over the past three weeks.
Source: Tero Vesalainen / Shutterstock.com
However, there will be a bright spot in September: the Google Pixel event scheduled for the end of the month.
Alphabet stock earns a ‘B’ rating in Portfolio Grader. The company faces challenges, but it remains a tech powerhouse. With the upcoming Pixel event we’ll see the latest in its continued push into hardware sales — a small, but increasingly important part of its business.
Pixel Event: New Hardware Releases on the Horizon
Often forgotten in the mix — and buried under Google’s monumental advertising revenue — is the company’s growing range of hardware. Leaks have been popping up all over the internet in recent weeks that suggest Google is poised to unleash a flood of new devices.
The latest leaks include a new Nest Audio smart speaker, and a new Chromecast video streaming dongle with integrated Google TV support and a voice-powered remote. Both of these have shown up in photos including their retail packaging.
Google has a Pixel event scheduled for September 30. In advance of the big day, marketing images of the Pixel 5 smartphone have leaked online. The Pixel 5 is an important release for Google. It’s finally adopting multiple cameras, continuing the company’s emphasis on its smartphones as mobile photography powerhouses. Google itself has already announced the Pixel 5 (and budget Pixel 4a) will offer 5G connectivity. Prices have also leaked and the Pixel 5 is expected to cost hundreds of dollars less than an equivalent iPhone or Galaxy smartphone.
We all know how the promise of 5G’s speed is expected to kickstart consumer smartphone upgrades, providing a big boost to companies involved in 5G technology along the way. Google is still a bit player in the smartphone industry — other than the fact that its Android operating system is running on the vast majority of smartphones, globally. However, it’s slowing gaining ground, and 2019 was its best year yet with 7.2 million units sold. With the Pixel 5 and 5G hysteria, expect 2020 to continue that trend.
These devices may currently be relatively immaterial compared to Google ad revenue, but hardware keeps the company in the public eye. And Google has a long-standing strategy of releasing hardware that ultimately ties consumers into its services. Every person who opts to save some cash by choosing a Pixel 5 instead of an iPhone 12 ensures more traffic coming through Google Search, Google Play, Google Maps, Google Assistant and other services.
So even if the hardware itself doesn’t make a big splash in terms of revenue, it helps to keep that ad revenue flowing.
That makes new hardware releases an important factor in the long-term performance of Alphabet stock.
There Are Also Clouds on the Horizon
Before I come off sounding too bullish on Alphabet’s prospects, it’s worth revisiting a post from a few days ago. There are two issues involving the company that investors need to keep a close eye on.
First, Alphabet isn’t making the gains that many had hoped for in the cloud computing space. To be clear, it is gaining ground, but very slowly. In 2017 the company had a 4.7% market share, and in its most recent quarter that had increased to 6%. Given the importance of cloud computing and the astounding amount of revenue in play — public cloud spending is projected to hit $500 billion by 2023 — analysts would like to see Alphabet grabbing a bigger share of that.
The second and more immediate threat is legal. The U.S. Justice Department is aggressively pursuing an antitrust investigation against Alphabet. The company has already paid billions of dollars in fines as a result of European antitrust rulings. The U.S. investigation could result in more penalties. Worse, it could end with Alphabet being forced to make changes that impact its search business and ad revenue.
Bottom Line on Alphabet Stock
Alphabet is facing some risky times, especially with its current legal difficulties, but the most likely outcome seems to be a fine. And the company easily shrugged off over $9 billion in penalties levied by European agencies. Alphabet stock is up over 50% since being hit by the first of those record-setting fines in 2017, so I’m not too worried.
In February, Google revealed that its hardware had become a “multibillion-dollar” business. It’s still minor compared to the money other divisions make (YouTube alone brought in $15 billion in 2019) and dwarfed by ad revenue. But it’s increasing, and every device sold helps to ensure that services and ad revenue keeps coming in. The next round of Pixel devices and other Google hardware may not materially move Alphabet stock, but they will play an increasingly important role in keeping its momentum going.
Alphabet stock may be down double-digits since the start of September, but it feels more like a buying opportunity than the start of something worse.
On the date of publication, Louis Navellier had a long position in GOOG. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
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