1. Alphabet Inc. (NASDAQ:GOOG)
Investors on Reddit that consider the stock undervalued: 20
Alphabet Inc. (NASDAQ:GOOG) is one of the world’s most valuable and largest companies by revenue. It was formed in 2015 after a restructuring of Google, which made Alphabet Inc. the parent company of Google and its subsidiaries. It is the best undervalued stock to buy according to Reddit. Their opinion is backed by hedge fund sentiment as well, with 165 hedge funds bullish on the stock as of Q1, 2024. It took the company 15 years to record $100 billion in revenues, but only six years to jump from $100 billion to over $300 billion worth of annual revenue, driven by Google Search, YouTube, and Google Cloud, with rapid progress being observed in Gemini as well.
These services drove the company’s strong performance during the first quarter of 2024 as well, in which Alphabet Inc. (NASDAQ:GOOG) smashed earnings expectations, posting an EPS of $1.89 against forecasts of $1.51. There is consensus among all major rating firms on the stock’s Buy rating, with an average share price target of $191.24, an upside of 6.61% from its current level. There is optimism for the stock price appreciation as investor sentiment improves about the company’s artificial-intelligence investments.
The quarterly results were received well by existing investors. Lakehouse Global Growth Fund stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its April 2024 investor letter:
Alphabet Inc. (NASDAQ:GOOG) delivered a strong quarterly result that came in well ahead of analysts’ expectations. Revenue grew 15.4% (16.0% constant currency) to $80.5 billion and operating income grew 46.0% to $25.5 billion. Revenue growth accelerated across Search, YouTube Ads, and Google Cloud, all whilst the company delivered its highest operating margin since 2021 – showing meaningful progress in the company’s efforts to durably re-work their cost structure. On the Generative AI front, management emphasised the company’s infrastructure advantages including 5th generation TPUs(chips developed by Google specifically for AI training and inference), high performance data centre architecture, and AI models that are 100x more efficient versus 18 months ago. Overall, we believe that Alphabet is well placed for the AI opportunity ahead and still has significant latent earnings power. When combined with a relatively undemanding valuation of 21x forward net profit and over $100 billion of cash on the balance sheet, it’s not hard to see why we remain positive on the range of outcomes in the years ahead.
The company expects its operating margins to further expand in 2024. Bank of America has also forecasted growth in its cash flows over the coming years, to be up from $69 billion in 2023 to $118 billion by 2026. That said, bears believe the stock faces significant threats from emerging trends such as gen AI chatbots, with some analysts including Gartner expecting a decline of 25% in traditional search engine use by 2026.
Overall, Alphabet Inc. (NASDAQ:GOOG) ranks first as the best undervalued stock to buy according to Reddit. You can visit 10 Best Undervalued Stocks to Buy According to Reddit to see the other valuable stocks that are on the hedge fund radar.
While we acknowledge the potential of Alphabet Inc., our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than Alphabet but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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