By Alphabet Inc’s (NASDAQ: GOOGL) post-earnings decline has lowered the forward multiple of its stock to about 21 that makes it relatively inexpensive to own at writing.
But famed investor Jim Cramer questions if it could actually be a value trap only?
That’s because the tech behemoth is broadly seen as a leader in artificial intelligence and should, therefore, be firing on all cylinders, given the limitless demand for AI at present.
Yet, it came in below Street estimates for sales in its fiscal Q4.
Google stock is on track to wiping its entire year-to-date gain on Wednesday.
Cramer could bail on Google stock in 2025
Cramer went on to suggest that his Charitable Trust may finally throw in the towel on Google stock in 2025, adding “I don’t have a specific catalyst for Alphabet”.
It would be hard to remain invested in this multinational if the AI driven acceleration in its revenue growth ends up being offset by a decline in its search business, he noted.
More importantly, the Nasdaq listed firm failed to meet analysts’ estimates for Google Cloud in its recently concluded quarter.
That suggests artificial intelligence is perhaps not being as big of a tailwind for Alphabet Inc as many had hoped for in the first place.
Versus its low early September, Google stock is still up close to 30% at writing.
Alphabet’s rising expenditures are concerning
Jim Cramer questioned if Google is becoming a value trap in a report on Wednesday also because the company’s management said the capital expenditures are seen hitting $75 billion in 2025.
Experts, in comparison, were at $59 billion only.
While that may be good news for the likes of Broadcom that helps Alphabet Inc design custom AI chips – it may not mean the same for Google stock as higher CAPEX could hurt its profitability this year.
And if the tech titan fails to grow its earnings as quickly as expected, it will only reinforce the narrative that its stock is indeed a value trap.
Cramer is losing confidence in Google’s management
Finally, the Mad Money host recommends caution on Google stock also because its management seems to lack consistency.
Cramer is not happy with the way that Sundar Pichai and his team has managed expectations of late.
Even on the earnings call, they focused almost overly on the positives instead of committing to addressing investors’ concerns.
He found the post-earnings decline in Alphabet shares as warranted considering it was trading at a rich valuation with little room for error.
While the company’s “search” business remained strong in its Q4, the former hedge fund manager is worried about how well it will be able to compete in the world of large language models (LLMs).
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