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Cramer says Alphabet's recent declines are a buying opportunity

  • Alphabet's recent stock declines are a buying opportunity, says CNBC's Jim Cramer.
  • Monday's 2018 first quarter earnings beat analyst expectations on multiple fronts.
  • Yet, the stock still declined Monday during after-hours trading. Cramer said investors "freaked out" because the company is currently spending a lot of money in its expansion plans.

Market sell-offs can create buying opportunities. CNBC's Jim Cramer said today's market nosedive is a chance to pick up Alphabet, the company formerly known as Google.

On Tuesday, Alphabet was down nearly 5 percent despite Monday's stellar earnings report. The earnings beat Wall Street expectations on multiple fronts. The stock immediately surged, only to turn negative hours later. On Tuesday, the stock open 1.4 percent lower. The market-wide sell-off only made matters worse.

"If you only looked at the stock, you'd think Alphabet just delivered some really ridiculous downside surprise," Cramer said on Mad Money Tuesday.

But, he said, "nothing could be further from the truth."

First quarter earnings showed Alphabet's revenue up 26 percent year over year. EPS during the quarter was $9.93 versus $9.28 expected. And, operating income for 2018 came in higher than expected at $7 billion, versus $6.6 billion for the same quarter in 2017.

"Alphabet is on fire," Cramer said. "Google search, better than expected. YouTube, better than expected. Advertising, better than expected. The cloud business, much better than expected."

Cramer pointed out that paid clicks are also up 59 percent year over year. Google Other Revenues — which include all the various Google apps, Google's online media store and Google's cloud platform — was also up 36 percent. And the company is benefiting from a current tax rate of 11 percent, compared with 20 percent the same time last year.

So why did market watchers panic after the earnings call?

"Investors got freaked out by the fact that Alphabet is spending a lot of money," Cramer said. "That's what it comes down to."

Cramer pointed out that Alphabet's management has been telling investors that its traffic acquisition costs would rise for some time. In addition, Cramer said higher costs are part of the company's plans to expand.

"Amazon and Netflix they can get away with spending much more on their hyper-growth stocks," he said. "Growth-oriented money managers are perfectly happy with these companies spending money like drunken sailors."

And, Cramer said, Alphabet stock is currently cheap — trading at 21 times next year's earnings estimates.

"So you have to ask yourself, why are we fretting about the margins when the company just reported a monster earnings beat?" Cramer said. "Clearly they're not having trouble making the numbers."

"The results speak for themselves," he said.

WATCH: Cramer talks Wall Street's Alphabet earnings reaction

Disclosure: Cramer's charitable trust owns shares of Alphabet.

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