Alphabet’s share price has tanked. Is this a great buying opportunity?

Alphabet’s (NASDAQ: GOOG) share price has taken a massive hit. Last week, it fell 12% in a single session after the company posted its Q3 results.

Now, I’m a long-term shareholder here and the stock’s a large position for me. The question is – should I buy more shares for my portfolio?

25% growth in Q3

Alphabet’s Q3 earnings weren’t terrible. For the quarter, revenue increased 25% year on year to $127.6bn, which is a lot of growth for a mega-cap company.

Zooming in on its cloud division, revenue here rose a whopping 103% to $30.7bn. So clearly the company’s having a lot of success on this front.

Why did the share price tank?

There were a few issues in the results though. One was that both revenue and earnings per share missed analysts’ forecasts (EPS came in at $2.12 vs $3.02 expected so it was quite a big miss here).

Another was that core Google search revenue – Alphabet’s primary revenue engine – only rose 12%, underperforming Wall Street’s expectations. This was due to the fact that more people are relying on Google’s AI Overviews for information as opposed to the regular search feature. And Google isn’t monetising AI Overviews as well as its traditional search.

A third issue was that YouTube ad revenues were a little soft. They were up 9% year on year but fell short of expectations.

Finally, heavy capital expenditures required to build out AI data centres drove free cash flow into negative territory. Historically, Alphabet’s been able to generate a ton of positive free cash flow but in Q3 it was… $9.1bn.

Why investors are spooked

Now, these issues have clearly spooked a few investors. Particularly the underwhelming performance in Google search.

This has investors worried that generative AI is disrupting its business model. Many seem to think that Google’s glory days are over.

Downward price target revisions

It’s worth noting that since the Q3 results, the stock has received numerous price target cuts – I’ve put some of these in the table below. Clearly, Wall Street isn’t as bullish on Alphabet as it was.

My move now

While I have some concerns about Alphabet’s Q3 earnings, I remain relatively bullish on the stock today. It’s not like people are no longer using Google – in Q3 its year-on-year query growth rate was the highest it’s been in the last five years.

If the company can find a way to monetise AI Overviews properly, search growth should pick up. I’m tipping that it will find a way – this is a company with a track record of creativity and innovation.

As for whether I’ll buy more shares, I probably will at some point as they’re starting to look quite cheap. But I’m not in a rush to buy them today.

With analysts lowering their price targets, I reckon the stock will probably struggle to find momentum in the short term. So for now, I’m going to focus on other opportunities in the market.

Should you invest £5,000 in Alphabet right now?

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Edward Sheldon owns shares in Alphabet.