3. Alphabet Inc. (NASDAQ:GOOGL)
Number of Hedge Fund Holders: 216
10-year Revenue CAGR: 18.36%
Alphabet Inc. (NASDAQ:GOOGL) is a California-based global technology conglomerate engaged in different sectors and offers a range of products, including internet technologies, advertising, hardware, and research and development. The company operates through three main segments, Google Services, Google Cloud, and Other Bets.
The Google Services segment has a broad range of products, including Google Search, YouTube, Android, Chrome, Google Play, Google Maps, and Google Ads. This segment also features popular applications such as Gmail and Google Drive, which are designed to enhance productivity and connectivity for users.
The Google Cloud segment provides enterprise-grade cloud computing solutions, which allow businesses to develop, test, and deploy applications on an infrastructure. It includes Google Cloud Platform services, tools for data storage, machine learning, AI, and analytics.
The Other Bets segment focuses on healthcare and internet services. It includes Waymo, which is advancing autonomous driving technology, Verily, which is focused on life sciences; and Nest, known for its smart home innovations.
At a stake value of $35.3 billion, 216 hedge funds held positions in Alphabet (NASDAQ:GOOGL) in the second quarter. As of Q2, Fisher Asset Management is the top shareholder in the company and has a position worth $8.856 billion.
Alphabet (NASDAQ:GOOGL) is a well-known name in the digital world and has made significant strides in both advertising and cloud computing. Google Cloud, while smaller compared to Amazon Web Services and Microsoft Azure, has made progress over the past year, largely due to the rising interest in AI products. The introduction of the Gemini family of models has contributed to this growth, helping the company gain market share.
In the second quarter, Google Cloud saw a remarkable 29% increase in revenue and achieved a profit margin of 11%, a significant marker of its profitability. Forrester Research has recognized Google as a leader in AI infrastructure and large language models, which reinforces its position in this rapidly growing sector.
CEO Sundar Pichai has highlighted that the company’s AI infrastructure and generative AI solutions have already generated substantial revenue, with over 2 million developers using these tools. Pichai views AI as a major growth driver for the future. The company has embedded AI across its diverse range of products, including Maps, YouTube, Gmail, and Google Cloud, which is a sign of its commitment to integrating advanced technology into its offerings.
According to Stat Counter, Google has dominance in the online search market as it controls around 90% of it. This strong position is supported by its expertise in search algorithms and AI. In the advertising sector, the company leads with six products, each boasting over 2 billion monthly users. This extensive user base enhances the company’s ability to gather data and deliver targeted ads, which makes it a crucial partner for many brands.
Pichai has noted that generative AI enhancements are not only increasing the use of Google Search but also improving user satisfaction, especially among younger demographics. With the initial success of its AI initiatives, the company is ramping up its investments in this area, with plans to allocate nearly $50 billion in capital expenditures for 2024, reflecting a more than 50% increase from the previous year.
Patient Capital Management stated the following regarding Alphabet Inc. (NASDAQ:GOOGL) in its Q2 2024 investor letter:
“Alphabet Inc. (NASDAQ:GOOGL) was a top contributor in the second quarter, finally catching up to its peers in the Magnificent 7. The company gained 20.8% in the period following strong first quarter earnings, a new $70B repurchase program (3% of shares outstanding) and the initiation of a cash dividend ($0.20 per share; 0.42% yield). We continue to believe the market underappreciates Google’s exposure to AI with its Gemini model being integrated into search results, YouTube advertising and its cloud offering. We continue to think that the cloud players will be the AI winners in the long-term, with Google being well positioned to take advantage. While the company trades at 24x 2024 earnings, if you remove the money-losing and under-earning businesses, you realize that you are paying below a market multiple for the core Google business. We do not believe there are many other AI winners trading at such an attractive multiple.”
