4. Alphabet Inc. (NASDAQ:GOOGL)
Average Upside Potential: 23.59%
Number of Hedge Fund Holders: 216
Alphabet Inc. (NASDAQ:GOOGL) is a multinational technology conglomerate that holds a majority stake in Google. It was formed in 2015 to manage various businesses, including Google Search, Google Cloud, YouTube, Waymo, Verily, and X. It focuses on innovation and organizing the world’s information, making it universally accessible and useful.
The company’s Waymo division has 700+ cars operating in San Francisco alone, offering robotaxi services in multiple cities. Despite facing criticism for fires, crashes, and traffic violations, Waymo has achieved 100,000 robotaxi rides in San Francisco, Los Angeles, and Phoenix. YouTube Ads and Google Cloud are projected to reach a $100 billion revenue run rate by the end of 2024.
Google Cloud revenue increased by 28.8% in Q2, surpassing $10 billion and $1 billion in quarterly revenue and operating profit. This contributed to a 13.59% overall revenue growth, totaling $84.74 billion. Net income was $23.6 billion. Google’s ad revenue increased from $42.6 billion to $48.5 billion in Q2, accounting for almost 60% of Alphabet Inc.’s (NASDAQ:GOOGL) Q2 sales. Besides Google, Alphabet owns YouTube, the world’s second-largest website. YouTube’s ad sales increased to $8.7 billion.
AI infrastructure and GenAI tools have generated billions in revenue year-to-date and are now used by over 2 million developers. Google dominates the search engine market with approximately 91.06% and plans to invest $50 billion in AI initiatives by the end of 2024. AI technologies enhance user engagement and advertising efficiency on platforms like YouTube and search. Despite competition from new chatbots, its technological advantage in search has led to increased market share.
Despite the recent antitrust rulings, the company remains a financial powerhouse. Its strong financial position and positive analyst sentiment make it a promising investment option.
Patient Capital Opportunity Equity Strategy stated the following regarding Alphabet Inc. (NASDAQ:GOOGL) in its Q2 2024 investor letter:
“Alphabet Inc. (NASDAQ:GOOGL) was a top contributor in the second quarter, finally catching up to its peers in the Magnificent 7. The company gained 20.8% in the period following strong first quarter earnings, a new $70B repurchase program (3% of shares outstanding) and the initiation of a cash dividend ($0.20 per share; 0.42% yield). We continue to believe the market underappreciates Google’s exposure to AI with its Gemini model being integrated into search results, YouTube advertising and its cloud offering. We continue to think that the cloud players will be the AI winners in the long-term, with Google being well positioned to take advantage. While the company trades at 24x 2024 earnings, if you remove the money-losing and under-earning businesses, you realize that you are paying below a market multiple for the core Google business. We do not believe there are many other AI winners trading at such an attractive multiple.”
