5. Alphabet Inc (NASDAQ:GOOG)
Number of Hedge Funds Holding Stakes as of Q2: 165
Market Cap as of September 18, 2024: $1.97 Trillion
Alphabet Inc. (NASDAQ:GOOG) is a tech giant that operates through Google Services, Google Cloud, and Other Bets segments. It provides products and services, including ads, Android, Chrome, Search, and YouTube.
Alphabet is one of the best forever stocks to buy now as its cloud business is in a phase of robust growth, given that the cloud market is nascent. The enhancement of cloud solutions with AI is increasingly strengthening their competitive edge. Cloud revenues in the second quarter rose to $10.3 billion from $8 billion a year ago.
The company dominates the search world and has been integrating artificial intelligence features to enhance user experience. Likewise, the search business remains the company’s core, generating billions of dollars in advertising revenues.
During the second quarter, total revenues were up 14% to $84.74 billion as YouTube earned $8.7 billion from advertising alone, marking a 13% increase compared to the same period last year. Meanwhile, Google Cloud experienced a significant rise in earnings, growing by 29% to surpass $10 billion in the same timeframe, illustrating the company’s rapid expansion.
Alphabet Inc. (NASDAQ:GOOG) holds more cash than debt on its balance sheet, which may provide a degree of financial stability. In the second quarter, it generated $23.6 billion in net income and $18.37 million as of last year’s same quarter.
Backed by a solid balance sheet with significant free cash flow, Alphabet has already started returning value to shareholders through dividend payments. The company has already confirmed a $0.20 dividend with a yield of 0.50%. Alphabet Inc. (NASDAQ:GOOG) looks incredibly cheap while trading at a price-to-earnings multiple of 18.
A total of 165 hedge funds were long Alphabet Inc. (NASDAQ:GOOG) in the second quarter.
Baron Fifth Avenue Growth Fund stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q2 2024 investor letter:
“We also added to Alphabet Inc. (NASDAQ:GOOG). The company reported solid financial results with first quarter revenue growth of 15% year-over-year, driven by 14% growth in search, 21% growth in YouTube, and 28% growth in cloud (which accelerated from 26% growth in the fourth quarter). The company has also increased its cost discipline efforts, which drove operating margins to 31.6% (compared to 25% in the first quarter of 2023). With regards to GenAI, while we are cognizant of the potential risks to the dominance of search, we believe that on the range of outcomes, Alphabet remains well positioned through its massive user distribution (9 products with over 1 billion users each), long-standing AI research labs (DeepMind and Google Brain), top AI talent, a solid cloud computing division in Google Cloud, and deep pockets for investing in AI. During the quarter, Alphabet also held its annual I/O conference, where it provided an update on its efforts in AI including: Gemini is now used by 1.5 million developers; model quality is expanding rapidly (e.g., context window is now 2 million tokens of length); the new genomics model, Alphafold 3 can predict structures of molecules and potentially accelerate drug discovery; new TPU6 AI chips has shown a 4.7 times improvement in compute performance compared to the prior generation; and Gemini for workspace is showing early data on a 30% increase in user productivity. Alphabet also has real value in assets such as Waymo, which are not factored into valuation today (and are potentially included at a negative valuation as they currently generate losses, hurting EPS). We continue to believe that the current valuation of Alphabet presents an attractive risk/reward for long-term owners of the business and have therefore increased our position.”
