3. Alphabet Inc. (NASDAQ:GOOG)
Number of Hedge Fund Holders: 174
One of the largest technology conglomerates in the world, Alphabet Inc. (NASDAQ:GOOG) is the parent company of Google. Key acquisitions include YouTube, Fitbit, and Nest, expanding Alphabet’s reach across multiple industries.
Shares of Alphabet Inc. (NASDAQ:GOOG) have fallen by over 12% since February 4th, when it released its Q4 2024 earnings, as the tech giant missed on revenue expectations and investors came away disappointed with its cloud computing revenue growth rate. Though Alphabet’s total revenue for Q4 2024 surged by 12% YoY to $96.47 billion, it missed market expectations. Moreover, the company’s revenue growth, as well as the uptick in its search business, its YouTube ads business, and its services segment were all slower compared to the same period in 2023. The company’s Cloud business grew 30% YoY to $11.96 billion but was below market expectations and witnessed a slower growth rate than in Q3. However, Alphabet remains financially healthy and generated $24.8 billion in free cash flow in Q4 and $72.8 billion for the full year 2024. It ended the year with $95.7 billion in cash and equivalents and $10.9 billion in debt.
Alphabet Inc. (NASDAQ:GOOG) continues to focus on expanding its AI strategy as it faces stiff competition from players around the world. The company announced earlier this month that it will spend $75 billion on its AI buildout in 2025, 29% more than market expectations. The massive figure primarily reflects the company’s investment in its technical infrastructure, with the largest component being investments in servers, followed by data centers ‘to support the growth of our business across Google Services, Google Cloud and Google DeepMind’.
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.”
