What happened

Shares of Alphabet (GOOG -1.96%) (GOOGL -1.97%) gained ground last month as the tech giant benefited from a rising tide in the stock market. Investors moved back into growth stocks in January on signs of cooling inflation and expectations that the Federal Reserve will slow the pace of its interest rate hikes.

Alphabet's gains came even as the company is scrambling to respond to OpenAI's launch of ChatGPT, which poses a clear threat to its internet search dominance.

According to data from S&P Global Market Intelligence, the stock finished the month up 12%, essentially tracking with the Nasdaq Composite index, which gained 10.7%.

So what

The biggest news out of Alphabet last month was its decision to lay off 12,000 employees, or roughly 6% of its workforce. The announcement was generally anticipated, as management had said in its third-quarter earnings report that it would slow hiring, and activist investor TCI Fund Management had called on the company to cut its workforce. Additionally, its big tech peers like Microsoft, Meta Platforms, and Amazon had all announced similarly proportioned layoffs.

Investors responded favorably to the job cuts, sending Alphabet stock up 5.3% on Jan. 20 as they seemed to agree that Alphabet needs to improve its cost structure.

Separately during the month, Alphabet also announced layoffs at its Verily Life Sciences and Waymo autonomous vehicle projects, showing it's reeling in spending in its "other bets" units as well. TCI, the activist investor, published another letter after the layoff announcement, arguing that Alphabet should cut another 25,000 employees, and rein in executive and stock-based compensation. That could signal that another round of cost cuts could be coming, especially as Alphabet's core business is struggling.

Now what 

Alphabet shares pulled back after the company reported its fourth-quarter results on Feb. 2. In the period, overall revenue grew by just 1%, ad revenue fell, and profits declined again. The company also missed analysts' consensus estimates on both the top and bottom lines. Revenue came in at $76.05 billion, below the consensus prediction of $76.53 billion, and earnings per share fell from $1.53 in the prior-year period to $1.05 this time, coming up short of the market's $1.17 per share expectation.

The company also said that in the first quarter, it expects to take restructuring charges for severance in the $1.9 billion to $2.3 billion range, and another $500 million charge for office space reductions. 

Management talked up its AI technology on the earnings call, but the company is clearly playing defense at the moment, and with revenue growth stalling, profits falling, and a disruptive new product on the market in ChatGPT, Alphabet looks more vulnerable than ever before.