We recently compiled a list of the 12 Undervalued Wide Moat Stocks to Buy According to Analysts. In this article, we are going to take a look at where Alphabet Inc. (NASDAQ:GOOGL) stands against the other undervalued wide moat stocks.

As per BlackRock, European equity gains have managed to outpace the US to start 2025. Despite this, the asset manager expects the US to reclaim leadership this year as the corporate earnings strength and the AI theme broaden out. The US equities have long exceeded the performance of their global peers. BlackRock expects that this has been made possible because of deeper capital markets and relative deregulation which promote risk-taking. The US can keep its edge, despite the S&P 500 lagging so far this year.

Markets to Broaden Out in 2025, Says BofA

As per Savita Subramanian, head of US Equity and Quantitative Strategy for BofA Global Research, the market has been broadening out. Last year and the year before that, the mega-cap tech companies managed to outperform the rest of the S&P. However, in the current year, broader market trends are visible. As per Subramanian, higher productivity and reshoring of manufacturing to the US are the 2 positive forces that are expected to fuel potential market growth beyond the tech sector.

As per Reuters, the volatility is expected to increase due to tariff announcements, policy changes from President Donald Trump, and job cuts, resulting in uncertainty. Anthony Saglimbene, chief market strategist at Ameriprise Financial in Troy, Michigan, has a year-end forecast for the S&P 500 of 6,500 as his “base case.”

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

BlackRock Remains Overweight on US Stocks

BlackRock expects that mega-cap tech and other AI-linked stocks will keep driving the US equity returns, mainly as and when the AI adoption grows. That being said, there are signs of earnings strength broadening beyond technology. The analysts now anticipate tech to post 18% earnings growth this year in comparison to 11% for the broader index. As per the LSEG data, this is a smaller gap versus 2024.

Overall, strong economic growth, broadening of earnings growth and a quality tilt underpin the firm’s conviction and overweight in US stocks as compared to other regions. The valuations for the big tech are backed by healthy earnings, and less lofty valuations for several other sectors. As per Kristy Akullian, CFA, Head of iShares Investment Strategy, there are tailwinds potentially favoring US equities over the rest of the world, mainly large-cap companies. The relatively easy financial conditions, healthy consumer balance sheets, and the expectations of deregulation and tax cuts continue to support the positive view.

Our Methodology

To list the 12 Undervalued Wide Moat Stocks to Buy According to Analysts, we used a screener and sifted through several media reports to choose companies having an economic moat and that analysts see upside to. Next, we filtered out the ones that trade at a forward P/E of less than ~20.0x. Finally, the stocks are arranged in ascending order of their average upside potential, as of February 28.

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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

Alphabet Inc. (NASDAQ:GOOGL)

Average Upside Potential: ~29.4%

Forward P/E as of February 28: ~19.2x

Number of Hedge Fund Holders: 234

As per Morningstar, Alphabet Inc. (NASDAQ:GOOGL) has a wide moat, thanks to the intangible assets, network effect, cost advantage, and customer switching costs. The firm anticipates Google Search to see growth at a mid-to-high-single-digit level over the upcoming 5 years as and when the broader digital advertising market matures and growth rates slow down. Notably, YouTube is expected to grow at a low-double-digit rate over the next 5 years as robust advertising business continues to be supported by increased subscription business, says Morningstar. Alphabet Inc. (NASDAQ:GOOGL)’s core advertising business is significantly involved in the advertising budgets, allowing the company to benefit from a secular increase in digital advertising spending.

The cash flows generated by Alphabet Inc. (NASDAQ:GOOGL)’s advertising business can be reinvested in growth areas including Google Cloud Platform, AI-infused search, and dynamic projects like Waymo. Apart from this, Alphabet Inc. (NASDAQ:GOOGL) is well-placed to capture significant opportunity in the ever-evolving public cloud space given its position as a critical cloud vendor for enterprises focused on digitizing their workloads.

Qualivian Investment Partners, an investment partnership focused on long-only public equities, released its Q3 2024 investor letter. Here is what the fund said:

“Alphabet Inc. (NASDAQ:GOOGL): Q2 2024 revenues and EPS beat expectations, with total revenues growing 14%, Search ad revenues growing 14%, YouTube ads growing 13%, and Google Cloud revenues growing 29%. Revenue growth in the quarter constituted a continued sequential improvement from earlier quarters in the year, suggesting a continued rebound in Alphabet’s core business except for YouTube ad revenues, which missed expectations and showed deceleration in the growth rate as compared to Q1 when it grew 21%. Operating margins improved by 310 bps vs. the same quarter last year.

Management continued to highlight developments with their generative AI program, which is seen as a foundational platform with opportunities across their businesses but particularly in search and cloud. However, this comes with material capex investment well ahead of the expected economic benefits from Gen AI, and the level of spending is leading investors to worry about the ROI on that spend for Alphabet, as well as the other hyperscalers (Microsoft and Amazon). We continue to have confidence in Alphabet’s ability to generate strong revenue, earnings, and cash flow growth well above the S&P 500’s in the years to come and view it as a core holding for the long term.”

Overall GOOGL ranks 2nd on our list of the undervalued wide moat stocks to buy according to analysts. 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 time frame. If you are looking for a deeply undervalued 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.

READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.

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