Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) stock has broken out. Before a 1% decline on Monday, Alphabet stock was trading at an all-time high. At this point, GOOG seems to have a clear path toward becoming the fourth stock to reach a $1 trillion market capitalization.

In this market, I’d bet on the stock hitting that milestone, with Alphabet following Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN) in the process. From there, however, the case becomes a bit trickier.

Alphabet stock admittedly looks cheap on an earnings basis, particularly backing out its cash hoard. Its growth continues to impress, with third-quarter earnings much stronger than GAAP accounting suggests. Fundamentally, the case for a sustainable $1 trillion valuation seems easy to make, particularly in a U.S. stock market trading at all-time highs.

But there are risks. Admittedly, I’ve been too bearish on Google stock in the past, and those risks may be manageable. Still, GOOG has some potential potholes to hit on its way to $1 trillion — and even after that mark — assuming it gets there.

Alphabet Stock Breaks Out

In retrospect, the huge gains in GOOG and GOOGL stock seem quite logical. In a low interest rate environment, investors still are looking to equities for returns. But there’s been obvious concern about valuations for growth stocks lately. Seemingly all of 2019’s high-profile initial public offerings have pulled back. The list of the worst-performing large-cap names of the past three months is full of stocks with big revenue growth but barely profitable or unprofitable businesses. That list includes Pinterest (NYSE:PINS), Twitter (NYSE:TWTR), Slack (NYSE:WORK) and Uber (NYSE:UBER), to name a few.

So investors fleeing 10-year Treasurys that yield less than 2% are looking for safety. They’ve looked to Big Tech. AAPL stock has posted a historic run. MSFT stock continues to gain. And Alphabet stock, too, has rallied.

Admittedly, market factors alone aren’t driving the gains. Second-quarter earnings impressed, as I wrote at the time. Third-quarter earnings looked disappointing from a headline standpoint. But Alphabet’s earnings are difficult to decipher, and the miss relative to Wall Street consensus was driven mostly by mark-to-market accounting of the company’s stakes in other publicly traded companies.

That accounting aside, the quarter was strong. Operating income in the core Google business increased 13% year-over-year. Traffic acquisition costs for years had been rising faster than revenue, but that concerning trend has reversed. Long-held worries about Google’s ability to manage the shift away from desktops to mobile have been assuaged.

And even at all-time highs, GOOG stock remains reasonably cheap. A forward price-to-earnings ratio just over 24 doesn’t seem that cheap in context.

But Alphabet has roughly $140 per share in net cash. It’s losing close to $1 billion per quarter pre-tax on its “Other Bets” businesses, which include self-driving car startup Waymo. Back out the cash and the losses, and the forward price-to-earnings multiple is in the range of 20.

For double-digit earnings growth, that’s probably an attractive multiple. It’s certainly cheap enough for investors to keep talking themselves into Google stock, just as they have AAPL and MSFT.

What Goes Wrong for GOOG Stock

Meanwhile, the GOOG stock chart looks bullish. Going back to early 2018, Alphabet stock had stalled out several times around the $1,260 level. The recent gains broke through that resistance, signaling a breakout. As Apple stock has shown, even a mega-cap stock can become a momentum play once resistance has broken.

And it wouldn’t be at all surprising if Alphabet stock cleared the $1 trillion mark. In fact, with that chart in this market, it’d be more surprising if it didn’t. The one concern might be what happens from that point.

After all, $1 trillion has been a troublesome level for the other three stocks that have broached it. AMZN stock twice has pulled back sharply from those levels. AAPL stock, before its recent rally, did the same. Only MSFT avoided the so-called “trillion-dollar curse.”

Meanwhile, there’s still an underlying argument that Alphabet stock should be cheaper than a stock like MSFT, or even than the market as a whole.

The shift to mobile still is modestly negative for advertising revenue. The duopoly of Google and Facebook (NASDAQ:FB) in online advertising is starting to crack. Amazon has become a real competitor for advertising dollars and independent names like The Trade Desk (NASDAQ:TTD) and the Rubicon Project (NYSE:RUBI) are showing explosive growth.

To be fair, these arguments have been made for years. Worries about mobile adoption, in particular, kept a lid on Alphabet stock at the beginning of the decade. Given that what was then Google stock was trading at around $300, in retrospect it’s obvious those fears were overblown. Digital advertising market growth should be large enough to make room for Amazon and buy-side platforms like The Trade Desk.

But there’s one more concern I’d watch closely, particularly given that the run in GOOG stock suggests investors have largely brushed it off.

Are Regulators Coming for Alphabet?

The late-May lows from which Alphabet stock has rallied 29% were caused by a key piece of news. U.S. regulators were probing both Google and Facebook for antitrust valuations.

InvestorPlace’s Luke Lango presciently argued that investors should buy the dip in both stocks — and so far, he’s been right. FB stock itself has rallied over 20%. A potential multi-billion dollar fine wouldn’t be great for either company, but in the context of Alphabet’s $900 billion valuation, such a fine hardly represents an existential threat.

That said, particularly at these levels, investors might be a bit too sanguine. The regulators currently investigating Google are part President Donald Trump’s business-friendly administration. A state-level investigation includes attorneys general from 48 states plus the District of Columbia and Puerto Rico. That investigation, too, can’t be chalked up to partisan politics; it’s being led by the Texas attorney general, whose state too long has come down on the side of free enterprise.

That state-level investigation reportedly is expanding into the company’s Android mobile operating system. And it follows fines (and required business model changes) levied by the European Commission in past years.

Those fines obviously haven’t interrupted the gains in Alphabet stock. And it’s possible, as Lango argued, that U.S. investigations, too, will have a minimal effect.

That said, a 2020 U.S. presidential election looms. Politicians on both sides of the aisle may well look to score points. And as May trading shows, it doesn’t take a political loss, but simply news of political risk, to impact Alphabet stock. That impact may be even larger if Alphabet indeed is the third stock trading with a market capitalization above $1 trillion.

This isn’t to say that GOOG stock is a short, or that investors need to rush to sell. Rather, it’s a reminder that Alphabet stock might continue to look somewhat “cheap” for a while. Given underlying growth, that doesn’t mean the recent rally will end. But it might well mean that the rally will at the least slow down.

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