1) Alphabet Inc. (NASDAQ:GOOGL)
Number of Hedge Fund Holders: 216
Analysts’ Average Price Target: 25.31%
Alphabet Inc. (NASDAQ:GOOGL) operates as a holding company. The company offers web-based searches, advertisements, maps, software applications, and other related services.
Alphabet Inc. (NASDAQ:GOOGL) continues to enjoy wide economic moat as a result of significant intangible assets associated with the overall technological expertise in search algorithms and AI (ML and deep learning), together with access to and accumulation of valuable data for advertisers. As a result of these competitive advantages, the company’s network effect has been becoming stronger. With an increasing number of online users and usage, digital ad spending is bound to increase, and Alphabet Inc. (NASDAQ:GOOGL) will be the primary beneficiary. In 2Q 2024, the company’s advertising revenue, which is a significant part of its business, came in at $64.62 billion as compared to an estimate of $64.53 billion.
Also, Android’s huge global market share of smartphones places the company well to continue dominating the mobile search. Wall Street experts believe that Alphabet Inc. (NASDAQ:GOOGL) has been validating its position as a leading AI beneficiary, given the encouraging signs on both consumer adoption of AI Search features and enterprise demand for AI agents and other services in the Cloud.
In 2Q 2024, Alphabet Inc. (NASDAQ:GOOGL) saw its revenues coming at $84.74 billion, surpassing the analysts’ expectations of $84.16 billion. The company’s 2Q 2024 results were aided by strong performance in Google’s Search and Cloud services. The management highlighted the importance of investment in high-growth opportunities and its focus on re-engineering the cost base.
As of the end of the second quarter, 216 hedge funds held stakes in Alphabet Inc. (NASDAQ:GOOGL). BMO Capital Markets reaffirmed an “Outperform” rating on the company’s shares, setting a price target of $222.00 on 16th September.
Patient Capital Management, a value investing firm, released its second quarter 2024 investor letter. Here is what the fund said:
“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.”
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 timeframe. If you are looking for a deeply undervalued AI stock that is more promising than the ones mentioned on our list but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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