1) Alphabet Inc. (NASDAQ:GOOGL)
Forward P/E as of March 28: ~17.3x
Number of Billionaire Investors: 33
Number of Hedge Fund Holders: 234
Goldman Sachs reaffirmed its “Buy” rating on Alphabet Inc. (NASDAQ:GOOGL)’s stock with a steady price target of $220.00. The endorsement comes after the company announced a definitive agreement to acquire Wiz in an all-cash deal valued at $32 billion. It is well-placed to execute this acquisition. This acquisition showcases an investment by Google Cloud to accelerate 2 large and growing trends in the AI era, i.e., improved cloud security as well as the ability to use multiple clouds (multi-cloud). Both cybersecurity and cloud computing are regarded as rapidly growing industries possessing a vast range of solutions. The increased role of AI and the adoption of cloud services managed to change the security landscape for customers. This has made cybersecurity increasingly important in defending against emergent risks.
The analyst at Goldman Sachs also lauded Alphabet Inc. (NASDAQ:GOOGL)’s strategic position in the computing environment, including the blend of desktop and mobile utility, and its expected growth in the future landscape fueled by AI and ML. Elsewhere, Stifel also maintained a “Buy” rating on Alphabet Inc. (NASDAQ:GOOGL)’s stock, demonstrating the growth potential from the company’s recent cybersecurity acquisitions, including Wiz.
Qualivian Investment Partners, an investment partnership focused on long-only public equities, published its Q3 2024 investor letter. Here is what the fund said:
“Alphabet Inc. (NASDAQ:GOOGL): Q2 2024 revenues and EPS beat expectations, with total revenues growing 14%, Search ad revenues growing 14%, YouTube ads growing 13%, and Google Cloud revenues growing 29%. Revenue growth in the quarter constituted a continued sequential improvement from earlier quarters in the year, suggesting a continued rebound in Alphabet’s core business except for YouTube ad revenues, which missed expectations and showed deceleration in the growth rate as compared to Q1 when it grew 21%. Operating margins improved by 310 bps vs. the same quarter last year.
Management continued to highlight developments with their generative AI program, which is seen as a foundational platform with opportunities across their businesses but particularly in search and cloud. However, this comes with material capex investment well ahead of the expected economic benefits from Gen AI, and the level of spending is leading investors to worry about the ROI on that spend for Alphabet, as well as the other hyperscalers (Microsoft and Amazon). We continue to have confidence in Alphabet’s ability to generate strong revenue, earnings, and cash flow growth well above the S&P 500’s in the years to come and view it as a core holding for the long term.”
While we acknowledge the potential of GOOGL as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued AI stock that is more promising than GOOGL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
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