Alphabet's stock has been a laggard lately. Here's one case for a rebound.

By Emily Bary

A new bull says Alphabet's stock price discounts regulatory risk. In the meantime, the analyst sees 'dramatic growth potential' ahead in the cloud.

Alphabet Inc.'s stock has been the weakest performer among the "Magnificent Seven" over the past three months - but one analyst still thinks it has plenty of shine.

Pivotal Research Group's Jeffrey Wlodarczak initiated coverage of Alphabet shares (GOOG) (GOOGL) with a buy rating and $215 price target on Tuesday, cheering their "attractive valuation in any realistic scenario." His price target implies more than 25% upside from Tuesday's close.

Read: Alphabet's stock has never been this cheap relative to Meta's. How to play that.

Alphabet's stock is down nearly 9% over the past three months, a decline that comes in the wake of renewed concern over the company's regulatory position. The Justice Department has deemed the company's search business to be a monopoly, and the Google parent faces various other challenges from the government.

Wlodarczak notes that the government and judge are in the process of determining remedies for Google, the most likely of which would block the company from paying handset makers for default status in mobile search. Alphabet, "in a more draconian move," could be required to separate out its Android business.

Those would be negative developments for Alphabet, according to Wlodarczak, but he sees the risk from them as already reflected in the share price. Alphabet's "current valuation appears to discount very conservative [post-2027] search revenue declines," yet Wlodarczak thinks various factors could offset that. For example, Alphabet could get a profit boost if it no longer had to pay for default search placement, and the company's highly profitable cloud-computing business acts as another cushion.

In the meantime, there are plenty of positives to Alphabet's business. The company "appears to be in a very strong competitive position with a deep moat around their dominant core search business model," Wlodarczak said. And while the company is only No. 3 in cloud computing, that part of the company "has dramatic growth potential."

Wlodarczak added that a Kamala Harris presidential win would likely be better for Alphabet given her ties to California and "very close relationship with senior [Alphabet] attorneys." Meanwhile, he said that former President Donald Trump has made some recent critical comments about Alphabet.

Shares of Alphabet ended Tuesday's trading 0.7% higher.

Don't miss: Apple stands out by this analysis - but watch Amazon and Nvidia as well

-Emily Bary

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

10-02-24 0450ET

Copyright (c) 2024 Dow Jones & Company, Inc.