4. Alphabet Inc. (NASDAQ:GOOGL)
Number of Hedge Fund Holders as of Q2: 216
Pershing Square’s Equity Stake: $1.38 Billion
Alphabet Inc. (NASDAQ:GOOGL) has to be Ackman’s biggest holding in the technology sector while offering exposure to the artificial intelligence frenzy. While many investors were worried about how AI would affect Alphabet’s core Google business, Ackman’s firm purchased more shares. His fund holds 7.55 million shares of the company, as of Q2 2024.
Alphabet Inc. (NASDAQ:GOOGL)’s core business is well-positioned to benefit from AI. Google Cloud’s revenue growth is already accelerating, reaching a $10 billion quarterly revenue run rate thanks to artificial intelligence.
Several well-known AI companies use Google Cloud to train and implement their AI models and services. Conversely, chatbots such as OpenAI’s ChatGPT don’t seem to have impacted core Search ad revenue thus far. In the latest quarter, Alphabet Inc. (NASDAQ:GOOGL)’s primary product saw a 14% increase in revenue. Nevertheless, it observed some weakness in the growth of YouTube ad revenue.
In the age of artificial intelligence (AI), Ackman has stated that he believes Alphabet has a competitive advantage due to the data it generates from search and related products. The gamble has paid off thus far, as Alphabet Inc. (NASDAQ:GOOGL) has outperformed the S&P 500. The company has also dismissed worries that chatbots like ChatGPT will eventually disrupt search.
Google is reducing expenses across the board even as it keeps making significant investments in its data centers to increase its AI inference and training capacity. Because of this, the operating margin is rising swiftly and contributing to the bottom line’s growth. For the next five years, analysts currently project earnings per share growth of more than 20% annually from Alphabet.
In addition to the robust growth, Alphabet remains one of Ackman’s top holdings, yielding 0.48% on dividends while trading at a discount with a price-to-earnings multiple of 19. There were 216 hedge funds long Alphabet Inc. (NASDAQ:GOOGL) in the second quarter, with a total stake value of $35.31 billion.
Baron Fifth Avenue Growth Fund stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q2 2024 investor letter:
“We also added to Alphabet Inc. (NASDAQ:GOOG). The company reported solid financial results with first quarter revenue growth of 15% year-over-year, driven by 14% growth in search, 21% growth in YouTube, and 28% growth in cloud (which accelerated from 26% growth in the fourth quarter). The company has also increased its cost discipline efforts, which drove operating margins to 31.6% (compared to 25% in the first quarter of 2023). With regards to GenAI, while we are cognizant of the potential risks to the dominance of search, we believe that on the range of outcomes, Alphabet remains well positioned through its massive user distribution (9 products with over 1 billion users each), long-standing AI research labs (DeepMind and Google Brain), top AI talent, a solid cloud computing division in Google Cloud, and deep pockets for investing in AI. During the quarter, Alphabet also held its annual I/O conference, where it provided an update on its efforts in AI including: Gemini is now used by 1.5 million developers; model quality is expanding rapidly (e.g., context window is now 2 million tokens of length); the new genomics model, Alphafold 3 can predict structures of molecules and potentially accelerate drug discovery; new TPU6 AI chips has shown a 4.7 times improvement in compute performance compared to the prior generation; and Gemini for workspace is showing early data on a 30% increase in user productivity. Alphabet also has real value in assets such as Waymo, which are not factored into valuation today (and are potentially included at a negative valuation as they currently generate losses, hurting EPS). We continue to believe that the current valuation of Alphabet presents an attractive risk/reward for long-term owners of the business and have therefore increased our position.”
