We recently compiled a list of the 10 Best S&P 500 Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Alphabet Inc. (NASDAQ:GOOG) stands against other S&P 500 stocks.

As per AXA Investment Managers, the US dominated financial markets this year. The investment firm believes that the broader economy has been stronger than anticipated with GDP growth running at an annualized rate of 3.0% in Q2. The blue-chip benchmark, S&P 500 index, has surged ~22% on a YTD basis. Also, the US fixed-income markets saw strong returns. Overall, the financial markets were supported by the success of the US Fed in dealing with inflation.

Interest rates have started to move lower, with credit markets reflecting the strength of the broader US corporate sector, per AXA Investment Managers. At the start of October 2024, the investment firm mentioned that a 50:50 allocation to the S&P 500 Growth equity index and the ICE US High Yield bond index might have resulted in a return of ~18% YTD.

S&P 500 Index – The Road Ahead

Forbes believes that the prevailing outlook for 2025 is cautious optimism. While the momentum in technology innovation, together with the environment of lower interest rates, should help the broader S&P 500 index, investors are required to be wary of certain risks. These include elevated valuations, global tensions, and uncertainty regarding the US presidential election.

According to ClientFirst Wealth, Legacy & Estate Planning, which is an independent, fee-only registered investment advisor (RIA), the ongoing innovation in AI and lower rates should help the S&P 500 Index see growth in the range of 14.5% – 19.6%. Another firm, Running Point Capital Advisors, expects the S&P 500 to see an increase of 7% – 11% in 2025, with some volatility. As per the company, the influencing factors include economic growth, expansion in earnings, higher mergers and acquisitions activity, and a favorable interest rate environment.

READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.

Sectors To Keep on Radar

Forbes highlighted that investors are required to keep certain sectors, like technology, healthcare, and energy, on the radar in 2025. As per IDC, worldwide spending on AI, which includes AI-enabled applications, infrastructure, and associated IT and business services, should more than double by 2028 to reach $632 billion. The incorporation of AI, and generative AI (GenAI) in particular, in a range of products should result in a CAGR of ~29.0% over 2024-2028, which should help the broader technology sector.

Definitive Healthcare believes that investors should see more device makers and pharmaceutical companies jump on the D2C bandwagon in 2025. Also, ICRA, a Credit Rating Agency, expects a strong financial outlook for the broader hospital industry in FY 2025. The optimistic outlook stems from the increasing incidence of non-communicable lifestyle diseases, a rise in per capita healthcare spending, increased medical tourism, and penetration of health insurance.

US Energy Information Administration, in its short-term energy outlook report (October 2024), mentioned that the summer temperatures this year were warmer in the US as compared to last summer, mainly in the upper Midwest and Northeast regions, which supported pushing up the US electricity demand. EIA expects 2% more U.S. sales of electricity to ultimate customers in 2024 as compared to 2023, followed by another 2% expected growth in 2025. Overall, it expects electricity sales to increase throughout economic sectors. It projects that commercial electricity sales will rise by 3% this year followed by a 1% growth in 2025.

Our Methodology

To list the 10 Best S&P 500 Stocks to Buy According to Hedge Funds, we extracted the stocks from the S&P 500 index. After getting the list, stocks that were the most popular among hedge funds were chosen. Finally, the stocks were arranged in the ascending order of their hedge fund sentiment, as of Q2 2024.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

Alphabet Inc. (NASDAQ:GOOG)

Number of Hedge Fund Holdings: 165

Alphabet Inc. (NASDAQ:GOOG) offers various products and platforms in the US, Europe, the Middle East, Africa, the Asia-Pacific, Canada, and Latin America.

Despite short-term challenges, Alphabet Inc. (NASDAQ:GOOG)’s long-term outlook is positive. Its leadership in AI technology, together with a diverse product portfolio, places it well for healthy growth. Analysts opine that continued AI integration throughout products, expansion of cloud services (primarily in AI and machine learning capabilities), YouTube’s potential to tap a significant share of the shifting TV ad spend, and cost discipline and operational efficiencies are expected to act as potential growth drivers.

Wall Street analysts opine that AI advancements have aided other Alphabet Inc. (NASDAQ:GOOG)’s properties, like YouTube, where ML algorithms tend to improve content recommendations and ad placements. Over the long term, AI integration should result in new product innovations and revenue streams. This should further solidify Alphabet Inc. (NASDAQ:GOOG)’s position as a technology leader.

The growing importance of first-party data in a privacy-focused advertising ecosystem should fuel Alphabet Inc. (NASDAQ:GOOG)’s growth prospects. Its extensive user data throughout various products enables precise targeting and measurement. This is valuable to advertisers because third-party cookies are phased out. Alphabet Inc. (NASDAQ:GOOG)’s investments in AI and machine learning are placing it well to develop new ad formats and targeting capabilities that can offer increased ROI for advertisers.

Wedgewood Partners, an investment management company, published third-quarter 2024 investor letter and mentioned Alphabet Inc. (NASDAQ:GOOG). Here is what the fund said:

“Alphabet Inc. (NASDAQ:GOOG) also detracted from performance despite reporting strong +15% revenue growth (foreign exchange-neutral) in its core search business during the Company’s second quarter. The Company continues to integrate generative AI (gen AI) applications into its largest products that reach billions of users every day. The advertisements that appear above and below this gen AI content, particularly on search results, represents a valuable opportunity for businesses. In addition, the Google subsidiary of Alphabet has been deploying gen AI features that help advertisers easily create ad content and then quickly scale that content across all of Google’s properties and formats. As we have pointed out in the past, Google’s new AI-driven advertising tools and products represent returns on the Company’s early and aggressive investments in AI hardware and application software over the past decade and should lead to significant, sustainable competitive advantages. During the quarter, the District of Columbia ruled that Google violated antitrust law by maintaining a monopoly in the U.S. across its search services and text advertising, specifically through exclusive distribution agreements. Alphabet’s deep competitive advantages go far beyond its distribution agreements, and we believe the Company should be able to maintain its superior return structure, despite the recent legal headwinds.”

Overall, GOOG ranks 5th on our list of 10 Best S&P 500 Stocks to Buy According to Hedge Funds. While we acknowledge the potential of GOOG 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 GOOG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.