3. Alphabet Inc. (NASDAQ:GOOGL)
Average Upside Potential: 26.68%
Market Cap as of September 26: $1989.17 billion
Number of Hedge Fund Holders: 216
Alphabet Inc. (NASDAQ:GOOGL) is a multinational technology conglomerate holding company, best known for its subsidiary, Google, focusing on technology-related products and services, including internet search, cloud computing, artificial intelligence, hardware, and software development, and is known for its innovative products, strong brand recognition, and commitment to advancing technology.
Google maintains a dominant position in the search engine market, with approximately 91.06% market share, and is continually improving Gemini and developing AI hardware. While Google’s TPUs (Tensor Processing Units) only hold about 20% of the market, their advancements promise increased market share. Additionally, Google’s 6th generation chips are 67% more energy efficient than their predecessors.
The company is investing heavily in AI, with plans to spend $50 billion by the end of 2024. Its strong competitive advantages, including its algorithms, AI expertise, and valuable data access, position it well for future growth in this segment. Over 60% of GenAI startups and 90% of GenAI unicorns are customers of the Google Cloud.
Alphabet Inc. (NASDAQ:GOOGL) is anticipated to reach $100 billion in combined revenue from YouTube Ads and Google Cloud by the end of 2024. In Q2, Google Cloud revenue grew 28.8%, contributing to an overall revenue increase of 13.59%.
Its Waymo division is a major player in the autonomous driving industry, with 700+ cars operating in San Francisco alone. It has faced criticism for incidents like fires, crashes, and traffic violations. Despite these challenges, Waymo offers robotaxi services and has reported providing 100,000 rides in San Francisco, Los Angeles, and Phoenix.
The company’s strong competitive advantages, including its AI expertise and valuable data, combined with its dominant position in search and mobile, make it a leading beneficiary of the growing AI market. Alphabet’s focus on innovation and cost efficiency positions it for long-term success.
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.”
