1. Alphabet Inc. (NASDAQ:GOOGL)
Number of Hedge Fund Holders: 234
Truist Securities has maintained its “Buy” rating on Alphabet Inc. (NASDAQ:GOOGL)’s stock. The analyst from the firm noted that while worries related to the evolution of AI in search functions and other challenges have impacted its stock, the current market valuation seems to have already accounted for the factors. Alphabet Inc. (NASDAQ:GOOGL)’s expected performance can be aided by strong user engagement on the company’s Search and YouTube platforms, together with steady growth in the Cloud segment. The company’s investments in AI infrastructure and research place it well to capitalize on the growing importance of AI throughout industries.
AI Integration throughout Alphabet Inc. (NASDAQ:GOOGL)’s product suite (such as Google Workspace, Android, YouTube) can result in new features and services, fueling user engagement and developing new revenue streams. Also, with companies adopting AI and ML solutions, Google Cloud Platform is expected to witness accelerated growth. Alphabet Inc. (NASDAQ:GOOGL)’s investments in quantum computing and several other cutting-edge technologies can result in significant breakthroughs. 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. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. 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 this 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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