3. Alphabet Inc. (NASDAQ:GOOGL)
Number of Hedge Fund Shareholders In Q1 2024: 222
Alphabet Inc. (NASDAQ:GOOGL) is the holding company for Google. Despite its heft, the average of 45 one year analyst ratings is Strong Buy, and the average share price target is $191.83 – implying that Wall Street is still optimistic for its future. However, June 2024 is seeing Alphabet Inc. (NASDAQ:GOOGL) lay off people in its cloud computing division as it battles a tough economy. Stifel’s Mark Kelley increaed Alphabet Inc. (NASDAQ:GOOGL)’s share price target to $196 from $174 in May 2024. The upgrade came after a detailed April 2024 note that had increased the target to $174 from $154 and shared that the price target had factored in a 26x multiple for Alphabet Inc. (NASDAQ:GOOGL)’s NTM EPS. The note cited confidence in the growth of the advertising industry and faster US eCommerce growth as some reasons behind the bullishness.
For their March quarter of 2024 shareholdings, 222 out of the 919 hedge funds profiled by Insider Monkey had held a stake in Alphabet Inc. (NASDAQ:GOOGL). Ken Fisher’s Fisher Asset Management owned the biggest stake which was worth $6.9 billion.
Alphabet Inc. (NASDAQ:GOOGL)’s forward price to earnings ratio is 22.94, which makes it nearly evenly valued compared to the S&P 500’s price to forward earnings ratio of 21. Additionally, while Alphabet Inc. (NASDAQ:GOOGL)’s shares have gained 158% over the past four years, its revenue has grown by 68% – creating some room for a potential claw back in the share price. Baron Fifth Avenue Growth Fund praised Alphabet Inc. (NASDAQ:GOOGL)’s AI initiatives in its Q1 2024 investor letter as it shared:
Google has also taken advantage of its distribution to unlock various benefits of GenAI, such as helping advertisers generate creative content in different formats or helping them optimize their budgets across Google’s various platforms. Additional opportunities that GenAI creates for Google include improving its existing offerings (e.g., GenAI offerings for YouTube creators) and helping drive demand for Google Cloud, which now offers a managed AI service called Vertex AI. We continue to monitor the risk from GenAI disrupting search, particularly given Google’s large market share today but believe the valuation is attractive and reflects too high of a probability for a bad outcome.
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 also believe Alphabet has further room to improve its cost discipline, given its high margin core Search business and similar efficiency measures taken at other large technology companies. All together, we believe Alphabet has a reasonable path to growing EPS at a mid-teens rate for years to come. On the back of Alphabet’s strong fundamentals and a reasonable valuation (approximately 20 times P/E (On 2025 expected EPS consensus as collected by FactSet) for a business of this dominance and quality), we decided to add Alphabet to the portfolio.
