tech
Alphabet has fallen sharply since mid-February. Trading a potential comeback with options
Michael Khouw breaks down this call spread risk reversal trade on GOOGL.
TL;DR
- Alphabet (GOOGL) has declined over 14% from its February highs, creating a potential buying opportunity.
- The company is leveraging AI advancements like Gemini 3.1 and 'Personal Intelligence' to defend its search moat and scale its cloud business.
- A Call Spread Risk Reversal strategy is suggested to profit from a potential rebound towards all-time highs with managed risk.
- Google Cloud's margins have significantly improved, reaching 30.1%, and its large backlog positions it as a major profit engine.
- AI integrations are enhancing the user experience and creating a sticky ecosystem, countering myths about AI harming Google's business.
- Advertising revenue continues to grow, supported by YouTube's strong performance.
- Potential risks include high capital expenditures for AI infrastructure and the possibility of declining Click-Through Rates if AI Overviews reduce ad engagement.
- GOOGL is considered attractively priced relative to its estimated future earnings and market peers.