Michael Short | Bloomberg | Getty Images
Sundar Pichai, chief executive officer of Google
Wall Street is getting jittery over FANG stocks.
Canaccord Genuity analyst Michael Graham told investors he is growing increasingly concerned about the valuations of the large cap tech bellwethers in a note to clients Thursday.
As a result he lowered his rating for Alphabet to hold from buy, saying the shares are “expensive by historical standards.”
FANG shares are crushing the market this year. Facebook is up 31 percent, Amazon is up 30 percent, Netflix is up 23 percent and Alphabet is up 22 percent year to date compared to the S&P 500’s 9 percent return.
“We still largely believe in the growth [of FANG], but the valuations are a bit less obvious. That said, we still believe the group should reward investors, but we are taking a step back on GOOGL,” Graham wrote in the report.
The analyst reaffirmed his $1,000 price target for Alphabet, representing 3 percent upside from Wednesday’s close. The company’s stock reached the $1,000 level for the first ever last week.
Graham gave three key reasons for his downgrade:
1. “We think much of the growth over the past two years is due to ad load increases on mobile search and YouTube, which (especially the former) will be hard to repeat.”
2. “Our refreshed detailed segment analysis suggests firmly that consensus gross margin estimates are too high, and while revenue growth mostly makes up for this, we believe this limits the potential for upward EPS revisions.”
3. “GOOGL’s P/E multiple of ~24x is expensive by historical standards, and puts the stock within a pitching wedge of our $1,000 price target.”
FANG is an acronym created by CNBC’s Jim Cramer for a basket of high-growth technology stocks — Facebook, Amazon, Netflix and Alphabet (formerly known as Google).
Alphabet did not immediately respond to a request for comment for this story.
The company’s shares are down 2 percent in Thursday premarket trading after the report.
— CNBC’s Michael Bloom contributed to this story.