8 Best Machine Learning Stocks to Buy According to Hedge Funds

4. Alphabet Inc. (NASDAQ:GOOGL)

Number of Hedge Fund Holders: 202

Alphabet Inc. (NASDAQ:GOOGL) is a technology conglomerate and the parent company of Google. Its core businesses include search, advertising, cloud computing, and a diverse portfolio of “Other Bets,” such as self-driving cars and life sciences. It’s known for its innovative culture and focus on AI.

Stifel recently raised its target to $225, predicting a 17% upside, due to the company’s dominance in search, online video, and strong AI potential. Wells Fargo, while acknowledging its AI advancements, maintained an Equal-Weight rating with a $190 price target. This indicates a slight downside. Wells Fargo expressed concerns about the potential impact of AI on Google Search and predicted a decline in search revenue as AI agents become more prevalent. Alphabet Inc. (NASDAQ:GOOGL) shares also declined 1.3% on Monday, following a broader market downturn in the tech sector.

However, the company’s Gemini AI model is deeply integrated into Google Search, which enhances user experience and expands search capabilities. Features like AI Overviews and Circle to Search allow users to ask more complex questions and interact with search in new ways. This increased user engagement drives more search queries, benefiting both users and advertisers. In Q3 2024, Google Services revenue increased 13%, driven by strong performance in Google Search and other advertising revenue, which grew 12%.

Here’s what Qualivian Investment Partners said regarding Alphabet Inc. (NASDAQ:GOOGL) in its Q3 2024 investor letter, highlighting the company’s strong second-quarter results:

“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.”