Alphabet (GOOGL +0.20%)(GOOG +0.34%) stock is losing ground Wednesday. The tech giant's share price was down 3.4% as of 10:30 a.m. ET, according to data from S&P Global Market Intelligence.
Alphabet published second-quarter results after the market closed yesterday. Despite strong sales and earnings beats in the quarter, investors are selling out of the stock in response to the company's forward guidance.
Alphabet's Q2 results were actually fantastic
Alphabet posted earnings per share of $1.89 on revenue of $84.74 billion in the second quarter. Meanwhile, the average analyst estimate had called for the business to record per-share earnings of $1.85 on sales of $84.29 billion.
Even though the company's share price is dipping today, the company's Q2 results were very strong -- and most key segments put up impressive performances. Overall revenue rose 15% year over year on a currency-adjusted basis, and the company's operating income margin hit 32% -- up from the 29% margin it posted in last year's quarter and exceeding the 31% margin predicted by Wall Street.
Alphabet's "Google search and other" segment saw revenue increase roughly 14% year over year to hit $48.5 billion. The company's cloud business also delivered another quarter of strong growth, with revenue rising roughly 29% year over year to hit $10.35 billion. Along with strong sales momentum for most of its segments, efficiency initiatives at the company helped push diluted earnings per share up roughly 31% compared to last year's quarter.
Is the bearish reaction to guidance creating a buying opportunity?
While Alphabet's Q2 results were roundly better than Wall Street had anticipated, company management made comments on the quarterly earnings call that have triggered an uptick in bearish sentiment. Third-quarter operating margins will likely be pressured due to increases in depreciation and expenses related to the company's investment in artificial intelligence (AI) and other tech infrastructure.
While margins could see some uneven movement in the near term, the long-term trajectory points to continued margin expansion for the company. Alphabet still expects that this year's operating margins will be up on an annual basis, and the software leader is likely still in the very early stages of benefiting from the AI revolution.
GOOG PE Ratio (Forward) data by YCharts
With Alphabet now trading at roughly 23 times this year's expected earnings, shares look attractively valued given the company's sales and earnings momentum. If you're a long-term investor interested in building a position in the tech giant's stock, today's pullback appears to present a worthwhile buying opportunity.
