We recently compiled a list of the 10 Most Promising AI Stocks According to Analysts. In this article, we are going to take a look at where Alphabet Inc. (NASDAQ:GOOGL) stands against the other promising AI stocks.
The General Outlook for Tech and AI is Positive
While 2024 has been a solid year for defensive stocks and utilities, the technology sector, on the other hand, experienced significant headwinds. However, the general outlook for technology and AI is starting to improve as we near the end of 2024. On October 9, Dominic Rizzo, T. Rowe Price portfolio manager, appeared in an interview on Yahoo Finance to discuss his thesis for the AI industry.
Most investors were disappointed after they failed to generate higher returns for their investments in AI during the second quarter of 2024. While Rizzo expects the theme to prevail for the next few quarters, he suggests that the technology and AI sector is on track to earn better returns, especially companies using artificial intelligence to improve their businesses.
As for the Magnificent Seven, while all companies have distinct business models and offerings, these companies have grown at a 50% to 100% faster rate than the rest of the market, making it reasonable to group them. Overall, Rizzo reiterates that while the group has been under immense pressure, it is well-positioned to leverage AI to its benefit.
Rizzo believes that AI is an innovation that is here to stay rather than a mere disruptive technology, meaning that companies using it to their benefit will most likely perform better than the ones that are not. Therefore, most if not companies have no other option but to direct investments in AI chips and GPUs. He expects the AI chip market to reach $400 billion by 2027.
Jamie Dimon is Not Worried about AI Taking Over Jobs
Technology has been altering the world since humans came into being. On October 8, Jamie Dimon, JPMorgan CEO appeared in an interview on Bloomberg Television where he discussed the role of artificial intelligence, initial public offerings, and the easing cycle by the Fed.
According to Dimon, technology was previously limited to certain regions and countries, but now we have tech centers in almost every part of the world including Berlin, Glasgow, and Edinburgh. According to Dimon, the acceleration in technology is great and he is glad that innovation is taking precedence, especially in Europe.
Speaking of AI, Dimon suggests that artificial intelligence is going to change a lot of things that are common elements of our world. As far as job losses go, technology has always been changing the job market and is mostly responsible for taking away jobs. However, he emphasizes the need to look at the bigger picture.
Overall, Dimon suggests that jobs will likely be more enhanced and researched-oriented. As for sectors like finance, people have been using it to detect fraud and minimize risk already. Similarly, AI has limited a lot of marketing jobs but at the same time, it has left a positive impact on productivity. Dimon shares he is not worried about AI changing the job landscape and that we should focus on re-training and re-educating workers losing their jobs as new technologies keep springing.
Now that we have studied the outlook of the AI industry, let’s take a look at the most promising AI stocks to buy according to analysts.
Our Methodology
To come up with the most promising AI stocks according to analysts, we sifted through multiple ETFs, our own rankings, and similar rankings on the internet. We then ranked the most promising AI stocks based on the Analyst upside as of October 9, 2024. We also included the hedge fund sentiment for each stock. It is to be noted, that we only considered stocks with a market capitalization of over $1 billion, as of October 9, 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).
A user’s hands typing a search query into a Google Search box, emphasizing the company’s search capabilities.
Alphabet Inc. (NASDAQ:GOOGL)
Analyst Upside as of October 9, 2024: 26%
Number of Hedge Fund Holders: 216
Alphabet Inc. (NASDAQ:GOOGL) is one of the most promising AI stocks according to analysts. The company owns a range of products, including Google Search, Google Maps, YouTube, Google Cloud, and Waymo. Some of its AI products include Vertex AI, Gemini, Vision AI, Document AI, and Contact Center AI, to name a few.
The company is relentlessly working to improve the Gemini experience and is also actively involved in developing AI hardware, having launched its NVIDIA chip rival in May. While Google’s tensor processing units (TPU) only account for almost 20% of the market, its advancements promise higher market shares. It is to be noted that the company intends to spend $50 billion by the end of 2024 to enhance its position in AI.
Alphabet Inc. (NASDAQ:GOOGL) logged revenue worth $85 billion in the fiscal second quarter of 2024, driven by the growing momentum in cloud and search. Additionally, over 60% of generative AI startups and 90% of generative AI unicorns are customers of the Google Cloud. One can infer that the technology giant is well-positioned to exploit the next wave of artificial intelligence and innovation, making it a solid investment.
Analysts are bullish on GOOGL and their 12-month median price target of $204 points to a 26% upside from current levels. Overall, 216 investors held stakes worth $35.31 billion in Alphabet Inc. (NASDAQ:GOOGL). According to the Insider Monkey database, Fisher Asset Management was the highest stakeholder with a position of $8.86 billion.
Patient Capital Management mentioned Alphabet Inc. (NASDAQ:GOOG) in its Q2 2024 investor letter:
“Alphabet Inc. (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.”
Overall GOOGL ranks 7th on our list of the most promising AI stocks according to analysts. While we acknowledge the potential of GOOGL as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than GOOGL 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.
