2. Alphabet Inc. (NASDAQ:GOOG)
Number of Hedge Fund Holders: 174
Alphabet Inc. (NASDAQ:GOOG) is a holding company with segments including Google Services, Google Cloud, and Other Bets. The Google Services segment operates various services and products, including Android, Google Maps, Google Play, Chrome, Search, and YouTube. However, the company makes most of its money by showing ads alongside relevant Search results on its search engine, Google. Digital advertising has proved to be a highly lucrative business for the company, as its Google search page ranks among the most valuable digital real estate internet properties.
Alphabet Inc. (NASDAQ:GOOG) generated $237.9 billion in ad revenue in 2023, of which 73.6%, or $175.0 billion, came from Google Search. In fiscal Q4 2024, Google Services revenues came up to $84 billion, reflecting a 10% growth that was primarily driven by an 11% year-on-year growth in advertising revenues. In addition, YouTube advertising revenues also underwent a 14% growth, driven by strong spending on US election advertising. Combined spend from both parties almost doubled from the 2020 elections.
Alphabet Inc. (NASDAQ:GOOG) is building on the continued strong growth in search revenues and is rapidly integrating its AI innovation into consumer experiences. By offering benefits such as Circle to Search and using voice and camera to ask questions, the company is offering new and innovative ways for people to Search, expanding commercial opportunities for its advertisers. The company also announced it would invest $75 billion in capex this year, up from $53 billion in 2024. Due to its investments in AI, investors expect Alphabet Inc.’s (NASDAQ:GOOG) stock to continue on a positive growth trajectory. The company ranks second on our list of the best advertising stocks to buy now.
Merion Road Capital Management stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q4 2024 investor letter:
“Alphabet Inc. (NASDAQ:GOOG): We have held GOOG for a long time (since 2018) on the basis of its immense business quality paired with an undemanding valuation, improving treatment of minority shareholders, and multiple options for value creation. Recently we have seen Alphabet bashed for losing the AI race to now heralded for its progress. I remain excited about their prospects with several near-term, mid-term, and long-term tailwinds. Near-term, Google Cloud continues its rapid growth and their latest large language model, Gemini 2.0, appears to have made significant progress to better serve consumer needs and improve GOOG’s other product offerings. Mid-term, Waymo is on the cusp of becoming a real value driver for the company; there are abundant articles discussing Waymo stealing share from the ride-share economy and launching in new geographies. Long-term, GOOG’s recently announced quantum computing chip positions it well for a future (many, many years away) where computing process are fundamentally different than today. All of these options are embedded in a company that already has an established and dominant earnings stream.”
