5 Best Advertising Agency Stocks to Buy

2. Alphabet Inc. (NASDAQ:GOOG)

Number of Hedge Fund Holders: 152

The sheer size and scale of Alphabet Inc. (NASDAQ:GOOG)’s Google’s advertising operations makes the company one of the best advertising agency stocks to buy. Though Alphabet Inc. (NASDAQ:GOOG) isn’t an ads agency per se, literally hundreds of thousands of small and large ads agencies are working to help their clients get success on Google’s search engine platform. Alphabet Inc. (NASDAQ:GOOG) also offers various resources for people to fine-tune their ads and recommends various Google partner ads agencies.

According to data from Dentsu, companies spent approximately $400 billion on online ads last year. Alphabet Inc. (NASDAQ:GOOG) took away about a quarter of that spending.

Polen Focus Growth Strategy made the following comment about Alphabet Inc. (NASDAQ:GOOG) in its Q1 2023 investor letter:

“One area we are watching regarding Alphabet Inc. (NASDAQ:GOOG) and Adobe is AI systems and their capabilities, including generative AI. Interestingly, both Adobe and Alphabet could see benefits or threats from the emergence of generative AI and large language models (LLMs). Both companies already use generative AI to the benefit of their users in anticipating how content creators edit their work (Adobe) and in how search results are anticipated and generated (Google). At the same time, breakthrough technologies like AI can open the door to additional competition and/or impact a company’s profitability levels. We now see AI systems others are developing, including LLMs and generative AI offerings, that could be more competitive in the future. While we think it remains early days for ChatGPT and the capabilities of these types of LLMs and generative AI programs like DALL-E, the technology seems to be progressing at a fast rate and will at least require a strong response from incumbents.

As of now, we believe Alphabet and Adobe are leaders in their own right in these areas and have a clear path to improving their existing offerings with AI advancements, which would allow them to be net beneficiaries of AI. There are also significant barriers to building leading AI offerings in these areas. As a result, our position sizes in Adobe and Alphabet remain sizeable. For Adobe, the status of its pending $20 billion-plus Figma acquisition is also uncertain. There is a good chance, in our view, that it will be blocked by regulators, which would mean the future opportunity to expand its offerings to the developer community (beyond designers) may not occur.”