4. Alphabet Inc. (NASDAQ:GOOGL)
Value of Appaloosa Management’s 13F Position (9/30/2024): $315 million (GOOG)
Number of Hedge Fund Shareholders (9/30/2024): 202 (GOOGL), 160 (GOOG)
Alphabet Inc. (NASDAQ:GOOGL) is the oldest holding in Appaloosa’s 13F portfolio to make the top ten list, spending a little over a decade as one of the fund’s stock picks. Alphabet has consistently ranked as one of hedge funds’ top stocks throughout that time, with no less than 310 funds being long GOOG or GOOGL shares since 2017.
Alphabet Inc. (NASDAQ:GOOGL) shares have gained 117% since the end of 2022 despite the tech giant facing numerous regulatory challenges around the world. In fact, some analysts view the latest regulatory developments as a potential near-term catalyst for the stock, with Barclays suggesting that GOOGL shares could rally “significantly” if Alphabet’s remedies are chosen over the government’s in the company’s ongoing antitrust case in the U.S.
Alphabet is also restoring investor confidence in its AI capabilities following the much publicized criticism of its “woke” AI chatbot back in February, which made major racial errors in its image generation function. Alphabet’s AI video generator Veo 2 is reportedly outperforming its biggest rival, Sora, in generating high-quality and accurate video content, which is leading to greater adoption among YouTube advertisers. Google’s AI search function Overviews is also being credited with providing a slight boost to Google’s search market share, both of which should boost revenue in 2025 and beyond.
Qualivian Investment Partners discussed why it views Alphabet Inc. (NASDAQ:GOOGL) as a core long-term holding in its Q3 2024 investor letter:
“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.”
