SAN FRANCISCO — Google’s parent company Alphabet has been on a remarkable stock rally in recent months, driven not by its traditional internet search dominance but by rising optimism around its artificial intelligence capabilities.
Shares in Alphabet have climbed 17 percent from their lows in early March, significantly outpacing the broader market. Powering this surge is investor enthusiasm for the company’s aggressive pursuit of transformative AI technology like large language models that could reshape how we interact with information.
However, as Alphabet’s stock price nears new highs, some veteran market analysts are flashing a warning signal. They contend the tech giant’s shares could be due for a pullback if the rally loses momentum and the price falls below a crucial “line in the sand.”
Bruce Kamich, a renowned stock technician with over five decades of experience, recently analyzed Alphabet’s charts. While noting enticing upside price targets based on his point-and-figure calculations, Kamich sounded a cautious tone about the stock’s recent behavior.
“The two most recent candles are spinning tops with small real bodies,” Kamich observed, referring to patterns in candlestick charts that suggest indecision in the market. “This balance could be easily upset with a bearish or red candle in the near future.”
Kamich also pointed to stalling momentum indicators like the on-balance volume line and signs of weakening in the stock’s 12-day momentum study since mid-March. Such technical signals make him “nervous” about Alphabet despite its recent outperformance.
The key level Kamich identifies? A close below $150 per share. “A close below $150 could be the start of a downside move in Alphabet,” he warned, suggesting this price point may represent a “line in the sand” for bullish investors.
Alphabet currently trades around $153, having surged amid euphoria over the AI revolution catalyzed by releases like OpenAI’s ChatGPT last year. So what fueled the company’s sudden AI optimism?
AI’s Corporate Gold Rush
When ChatGPT launched in late 2022, becoming the fastest app to reach 1 million users, it set off a corporate gold rush. From banking to drug development, manufacturing to retail, businesses worldwide scrambled to create AI strategies.
Alphabet, with its troves of data and computing power from Google search and cloud services, was perfectly positioned. The company swiftly launched its own large language model called Bard to safeguard its search dominance from Microsoft’s ChatGPT-powered Bing.
But Alphabet raised the stakes further in December by unveiling Gemini, an even more powerful generative AI model developed jointly by its DeepMind and Google Research teams. While individuals use Gemini for insight and creation, businesses harness its tools to accelerate AI research on Google Cloud.
“I believe the transition we are seeing right now with AI will be the most profound in our lifetimes,” Google and Alphabet CEO Sundar Pichai proclaimed.
Protecting Search Supremacy
So far, Alphabet’s moves appear to be preserving Google’s iron grip on internet search. Over the past six months, data from Similarweb shows Google’s search market share outside China has barely budged from 92 percent despite Microsoft’s AI offensive.
Meanwhile, Google Cloud is benefiting from surging enterprise demand for AI cloud computing. Its revenue grew 26 percent year-over-year in Q4, outpacing rivals Amazon Web Services and Microsoft Azure as it solidified its number three position with 11 percent market share.
Across the company, Alphabet’s Q4 revenue jumped 13 percent to $86 billion, with profits up 42 percent. Analysts at Wedbush Securities see Google as a “clear generative AI beneficiary,” expecting its search advertising to match or exceed current monetization as AI search evolves.
There are even reports that Apple may license Gemini to power AI features on iPhones and other devices, potentially worth billions.
Perils of Priced-In Potential?
Yet Kamich’s technical caution underscores how Alphabet’s swelling AI ambitions come with valuation risks if rosy expectations prove overheated.
The stock’s recent rally suggests investors are eagerly pricing in Google’s AI growth potential. But with shares hovering near all-time highs, there’s a chance much of that upside may already be baked into the current valuation.
“Shouldn’t we buy new highs? Many times the answer is yes but sometimes the answer could be no,” mused Kamich. His point-and-figure analysis shows daily and weekly price targets as high as $190 and $204 for Alphabet – over 25% above current levels.
However, those lofty targets could quickly shift downward on any decisive move below $150. Kamich sees that level as a key “line in the sand” separating Alphabet’s AI-inspired rally from a potential downside reversal.
The Uncertainty to Come
Of course, Alphabet’s AI journey is just beginning. As Pichai stated, the technology represents “one of the biggest science and engineering efforts” in the company’s history.
While the AI revolution holds immense potential to reshape Google’s businesses, from search to cloud to autonomous vehicles, plenty of uncertainty remains over how the technology will evolve and be monetized.
Regulators are increasingly scrutinizing AI’s societal impacts. Rivals like Microsoft are investing aggressively. And targeted AI models have yet to achieve human parity on many real-world tasks.
For Alphabet investors, that future promises both incredible opportunities and risks. The market’s embrace of the company’s AI ambitions has been a key driver lifting its stock to dizzying heights.
But with expectations running so high, the margins for setbacks or missteps appears to be shrinking. If Alphabet’s shares can’t continue scaling new peaks, that $150 “line in the sand” may quickly transform from a subtle technical warning into a major test of the AI narraphoria gripping Wall Street.
