Alphabet Looks Strong, but Shares Fairly Valued

Strength in Google's advertising, cloud, and hardware offerings helped accelerate overall revenue growth from a year ago, leading to better than expected results for parent Alphabet.

While the better than expected first-quarter revenue helped beat expectations on the bottom line, we note that the growing traffic acquisition costs, plus further investments in data centers and content acquisition, continue to push gross margin lower, as we expected.

Alphabet's network effect and data economic moat sources continue to drive growth in the size and overall usage of Google's ecosystem which help the firm remain the behemoth in online advertising and gain further traction in enterprise cloud.

Our fair value estimate of $1,200 is intact as our higher revenue forecast was offset by a slightly lower margin assumption for 2018 and beyond. Alphabet shares are currently trading in 3-star territory, but we would recommend investing in this wide-moat and high uncertainty rated name on any pullback.