Alphabet Earnings (GOOG) On Deck With The Stock an Underperformer This Year

Alphabet Inc., the parent company of Google, is gearing up to release its quarterly earnings after the closing bell tomorrow . As investors hold their breath for the tech giant's financial health check, Alphabet's stock (NASDAQ: GOOG/ GOOGL) has continued to trade in a steady range.

What may be surprising to many is that the stock has in fact underperformed the market over the past year, with gains of 20.5% on a YTD basis, trailing the S&P 500 index's 22.92%. Whilst the stock is still a major part of many portfolios, concern surrounding the core business of Alphabet appears to at levels not seen for a long time.

Markets are expecting an EPS of $1.85, a decline from the most recent quarter's $1.86; whilst revenue is expected to come in at $86.22B (from $84.74B in the previous report).

An impressive 16% to 18.5% free cash flow (FCF) margin is anticipated for Alphabet in Q3, according to analyst expectations. This figure serves as a vital indicator of the company's ability to sustain growth, fund expansion, and return value to shareholders. With the past dictating the present potential, the tech behemoth could be setting the stage for strong earnings owing to its consistent history of revenue resilience and innovation-driven growth.

Analysts have also set their sights higher for GOOG, with the average price target hovering around $202.69. This suggests an over 21.5% upside potential from its recent close, hinting at further upside to come, but is the hyper growth phase gone?

For a company that has had such a strong moat around it's core search and ad business over the years, the narrative seems to be shifting slightly, with some concerned about AI search, changing behaviours, and new competitors eating into some of the previously unshakeable growth.

This concern is reflected in some of the recent performance of the stock, with the GOOG stock price having gained just 0.06% over the past 6 months, whilst it's peers have seen significantly more bullish upgrades coming in. It may be too early to talk about the threat to Alphabet with the cash on hand, and the ability to shift strategy to compete in new ways, but the fact that a perceived threat exists now takes some of the previously thought certainty off the table.

Despite the associated risks of such investment strategies, pouring capital into GOOG stock remains attractive for many, especially given the high price targets analysts continue to set. The upcoming earnings report will serve as a critical test for these optimistic forecasts. If the company reveals solid earnings and robust free cash flow, GOOG shares might very well break free from the current trading range, climbing to higher valuations that reflect the tech giant's continuing influence and growth in the digital economy.