4. Alphabet Inc. (NASDAQ:GOOGL)
Market Cap: $2 Trillion
5-Year Net Income CAGR: 20.33%
TTM Net Income: $87.657 billion
Number of Hedge Fund Holders: 216
One of the most profitable blue chip stocks, Alphabet Inc. (NASDAQ:GOOGL) is another contender for the most profitable blue chip stocks and is another company on our list that is a part of the tech Big Five. The company’s infrastructure includes a diverse range of subsidiaries, with Google remaining its largest and most well-known entity, which oversees services like Android, YouTube, and Google Search.
Other subsidiaries focus on multiple sectors, including health, venture capital, and autonomous driving. The company’s mission is to organize global information and make it accessible, with Google Search, YouTube, Google Assistant, and Google Cloud as key tools for users and businesses.
AI is also a big part of the company and has been integrated into its products for over a decade and powers features like Google Translate and Google Photos. Its latest AI model, Gemini, introduced in 2023, further advances its capabilities across several data types.
Alphabet (NASDAQ:GOOGL) is experiencing a pebble in its shoe as it is facing intensified antitrust scrutiny in the U.S. The Justice Department is considering forcing it to spin off certain services to address monopolistic practices in online searches.
However, Mizuho Securities analyst James Lee has still reaffirmed a Buy rating on the company’s stock due to its strong fundamentals and a positive outlook despite regulatory hurdles.
TipRanks reported that Lee’s analysis considers the Department of Justice’s proposed changes to Google’s search operations, which include banning certain exclusive agreements and mandating the sharing of search and AI-related data. He believes these adjustments may have some structural implications but will not significantly weaken Google’s market position.
He believes that Alphabet (NASDAQ:GOOGL) can effectively manage these regulatory challenges. Additionally, the proposed remedies regarding search result displays and advertising are expected to have minimal effects on the company’s overall operations.
Patient Capital Management 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.”
