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Google downgraded amid EU legal fears

Sundar Pichai, CEO, Google
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Sundar Pichai, CEO, Google

Google-parent Alphabet is beating the market by a long shot — but a lofty valuation and legal risks in Europe are dampening opportunities for investors, according to CFRA analyst Scott Kessler.

Kessler took the stock down a notch on Friday, from "strong buy" to "buy," citing the stock's nearly 26 percent rally so far this year, beating the S&P 500's rise of almost 9 percent.

But while the stock is "attractively valued," it is not "compellingly priced," he wrote.

"The primary reason is pretty simple — our target price is $1,070," Kessler told CNBC. "With the stock a shade under $1,000, that's roughly 7 percent upside.. ... With the sentiment being so strong around this name, I think it's perhaps prudent to be a little less aggressive on our positive call."

European anti-trust regulators are expected to rule in the "next few months" on whether Google has become too dominant in areas like search, advertising and Android, which could result in fines and sanctions, Reuters reported last month. While Kessler wrote he sees "healthy sustainable growth" from businesses like mobile and YouTube, he noted continuing regulatory risks.

"Definitely something that's looming, potentially significant, and not seemingly concerning to most," Kessler told CNBC. "If the EC proceeds with penalties — people are aware of the size of that fine, and that Google has more than enough funds .... to cover that. I don't know that the financial fines would be the most significant negative. I do think that something like that could very well have a chilling effect of Google's, and Alphabet's, ability to be more aggressive on a number of different fronts. At the least, that should be a negative."

Alphabet is not the only tech stock that's seen blockbuster gains this year, as the entire Nasdaq 100 has flirted with records. Valuation is high for a lot of those companies, Allianz Global Investors portfolio manager Walter Price told CNBC's "Squawk Alley" on Friday.

But Price said there's a "very healthy" broad-based improvement in the technology market, as stocks such as Facebook and Alphabet fall in and out of favor compared with stocks such as semiconductor companies, as long as the economy stays "in recovery mode."

Dan Morgan, a portfolio manager at Synovus Trust, pushed back at the idea that Alphabet shares are "too exorbitant."

"You look at Google, you look at Amazon, those are the big names, those are the stocks looking to hit $1,000 a share," Morgan told "Squawk Alley" on Friday. "I wouldn't be surprised if you continue to see momentum in that group, going forward. There's not much to stop them, that I can see."

Alphabet was not immediately available to comment on the report.