We recently compiled a list of the Harvard University Stock Portfolio: Top 10 Stock Picks. In this article, we are going to take a look at where Alphabet Inc. (NASDAQ:GOOGL) stands against Harvard University’s other stock picks.
When it comes to college prestige, Ivy League institutions lead the rankings. For an investment that can approach $60,000 per year in tuition and fees as of the 2022-2023 academic year, these schools promise an elite education and promising career prospects post-graduation. Although opinions may vary on which Ivy League school offers the best education, there’s no debate over which has the largest endowment. Harvard University’s endowment stands at an impressive $53.2 billion, bolstered by generous donations and strategic investments managed by the Harvard Management Company (HMC).
Founded in 1974, Harvard Management Company provides a dedicated funding stream that supports the university’s teaching and research, contributing over one-third of Harvard’s annual operating budget. In fiscal year 2024, Harvard’s endowment distributions totaled $2.4 billion, representing 37% of the university’s annual revenue. These funds supported key areas such as financial aid, faculty, and research initiatives. The university allocated $749 million toward financial aid across its schools, including $250 million for undergraduates. Harvard’s endowment portfolio is heavily weighted toward private equity and hedge funds, with private equity comprising 39% of the portfolio and hedge funds making up 32%.
According to Harvard Management Company CEO N.P. “Narv” Narvekar, the endowment targets an 8% return, and its seven-year annualized return of 9.3% has exceeded that goal. This performance currently places it mid-tier among Ivy League and other elite institutions. While its fiscal year 2024 return did not match Columbia’s 11.5% or Brown’s 11.3%, it outpaced those of MIT, Cornell, Dartmouth, and the University of Pennsylvania. Despite fiscal year 2024 being a strong period for public equities, with the S&P 500 frequently hitting record highs, Narvekar states that HMC’s strategy of lower public equity exposure still delivered robust returns:
“In FY24, public equity and hedge fund portfolios stood out for their strong performance. This is a particularly positive indicator, since HMC’s hedge fund portfolio has less equity exposure than most hedge fund indices, yet still outperformed during a strong year for equities.”
Notably, HMC significantly reduced the endowment’s exposure to real estate and natural resources, scaling it down from 25% in 2018 to just 6% in fiscal year 2024. This strategic shift has contributed positively to the endowment’s overall returns. Large-cap technology equities, particularly in the IT sector, may have also boosted returns for the fund. Michael Markov, founder of Markov Processes International, suggested that Harvard likely benefitted from “overweighting IT and the Mag 7 relative to the broad S&P 500.” Markov considers fiscal year 2024 a success for Harvard and a testament to HMC CEO Narvekar’s strategy of overhauling the university’s complex portfolio during his seven-year tenure.
Our Methodology
For this analysis, we examined Harvard Management Company’s stock portfolio from the third quarter of 2024. The stocks are ranked based on the firm’s stake value in each holding.
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).
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Alphabet Inc. (NASDAQ:GOOGL)
Harvard Management Company’s Stake: $198.1 million
Alphabet Inc. (NASDAQ:GOOGL) is a leading technology company with a diverse portfolio, including Google Services, Google Cloud, and Other Bets. The company offers products such as ads, Android, Chrome, Search, and YouTube, maintaining dominance in the search market while leveraging artificial intelligence to enhance user experiences.
On October 29, Alphabet Inc. (NASDAQ:GOOGL) reported its third-quarter results for fiscal 2024. The company saw a 15% year-over-year increase in consolidated revenue, reaching $88.3 billion. A key driver of this growth was the Google Cloud segment, which includes Google Workspace. Revenue from Google Cloud surged 35% year-over-year, primarily fueled by AI infrastructure and generative AI solutions within Cloud Platform services.
BMO Capital Markets raised its price target for Alphabet Inc. (NASDAQ:GOOGL) to $217 from $215, maintaining an Outperform rating on the stock. This adjustment reflects the company’s strong performance across its business segments. BMO’s analysis noted the acceleration in Alphabet’s cloud revenue and highlighted the company’s successful search monetization efforts. Additionally, the growth of AI Overview Ads on mobile is expected to drive further expansion, with a global rollout anticipated after 2025.
Cooper Investors Global Equities Fund (Hedged) stated the following regarding Alphabet Inc. (NASDAQ:GOOGL) in its Q3 2024 investor letter:
“Alphabet Inc.’s (NASDAQ:GOOGL) operating performance remains strong with sales growing 14% in the most recent quarter. Highlights included the ongoing secular growth of digital advertising driving Google search (+14%), YouTube’s continued success as a leading content platform (+13%) and the performance of the Cloud business (+29%). In conjunction with this strong sales momentum, Alphabet’s increased focus on expenses is delivering margin expansion such that Operating Income grew 26%.
Despite this operational momentum, Alphabet’s share price declined 11% in the quarter as a federal judge ruled against the company in its case with the US Department of Justice. The case pertains to Google’s monopolisation of both the search and digital advertising markets which is claimed to limit competition and innovation and/or in
Potential remedies include prohibiting exclusive agreements which make Google the default search engine on Apple or Samsung devices, forcing Alphabet to share its advertising technology with rivals, or in the extreme breaking the company apart. The timing and outcomes remain somewhat uncertain however we remain of the belief that at the fundamental level Alphabet’s products are best of breed across several verticals and are benefitting from secular industry trends and that these factors will be the ultimate determinant of long-term shareholder returns.”
Overall GOOGL ranks 2nd on Harvard University’s list of top stock picks. While we acknowledge the potential of GOOGL as an investment, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. 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.
