We recently compiled a list of the 10 Best Growth Stocks to Buy According to Billionaire Dan Loeb and in this article we will discuss the activist investor’s position in Alphabet Inc. (NASDAQ:GOOG).
Billionaire investor Dan Loeb’s hedge fund Third Point had a strong start to 2024 after its offshore fund posted returns of 7.8% in the first quarter chugging along with the broader market’s 10.6% gain. AI has been one of his top investing themes for some time now and the activist shareholder maintains his bullish view on the technology. In the first quarter, he initiated a position in Alphabet and also increased his position in Amazon by 22% to about $920 million.
Loeb Thinks Vistra’s Capital Allocation Strategy is “Brilliant”
Loeb’s also bullish on the energy transition and one of his favorite stocks that is expected to benefit from the AI-driven electricity demand is Vistra, one of the largest independent power producers and retail electricity providers in the US. Though Vistra’s core markets have experienced volatility due to weak domestic electricity demand, the power company’s “capital allocation strategy has been brilliant”, he stated in his Q1 2024 letter to shareholders, seen by Insider Monkey. In the weak demand environment for fossil fuels, Vistra made smart moves by shutting down its unprofitable coal plants and instead buying back 33% of its shares between 2018 and 2023. Additionally, its acquisition of nuclear generation assets of Ohio-based energy company, Energy Harbor, was right on time as governments are turning to nuclear fuel sources to meet the world’s growing energy demands. Loeb expects Vistra to be a direct beneficiary of AI-driven electricity demand and is bullish on the company’s unique position of holding both renewable and fossil fuel-based assets under its belt.
Loeb’s Bullish on LSEG, and For Good Reason
Another AI play Loeb is increasingly bullish on is UK-based stock exchange and financial data company London Stock Exchange Group. The activist investor likes the company’s unique market position as a data provider that is democratizing and making financial data accessible to consumers without the use of additional third-party software. He sees London Stock Exchange Group benefitting from generative AI as information retrieval systems in financial services become more powerful. He also expects the company to develop “a powerful Research Assistant application” with Microsoft to reduce both human resources and time needed to process financial data. He thinks London Stock Exchange Group is at the forefront of capitalizing on the transition of the financial services industry “from manual data processing via clunky desktop terminals to machine-assisted data processing”.
Our Methodology
We scanned Third Point’s Q1 portfolio and picked growth stocks from the fund’s top 13F holdings. Additionally, we’ve also added overall hedge fund sentiment, as of Q1 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).
Note: All pricing data is as of June 6.
Is Alphabet a Good Growth Stock to Buy Now
Alphabet Inc. (NASDAQ:GOOG)
Third Point’s Stake Value: $452,790,000
Number of Hedge Fund Holders: 165
Loeb initiated a position in Alphabet Inc. (NASDAQ:GOOG) in Q1 2024, acquiring a stake of nearly $453 million. It’s is one of his top growth stocks picks. He likes the company’s dominant position across its different verticals including search and cloud, however, pointed out threats to the company’s core business (Google Search) due to the rise of answer engines like Perplexity and shifting trends in how consumers interact with the internet. But Alphabet Inc. (NASDAQ:GOOG) is a tech titan and Loeb is confident about the company’s ability to protect its profits from competitors by utilizing its expertise in AI, a technology the Google-parent has been working on for over a decade (long before ChatGPT). Here’s are some comments from Third Point’s Q1 2024 investor letter about GOOG:
“During Q1, the funds made a substantial investment in Alphabet Inc. (NASDAQ:GOOG) as the market worried about the impact of LLMs, personal assistants, and answer engines such as Perplexity AI on Google Search. We have owned Alphabet in the past and have long admired its exceptional business model and its proven ability to maintain a leading position across an array of preeminent products such as Search, Gmail, Android, GCP, and YouTube.
The concern that in an AI world, changes in the way consumers will eventually interact with their personal devices and with the internet can result in risks to Alphabet’s core business Search is not entirely unfounded. Alphabet, however, has both a substantial distribution and technology advantage over competitors and is positioned to use its AI capabilities to unify, enhance, and better monetize the entire suite of its products…” (Click here to read the full text)”
Alphabet Inc. (NASDAQ:GOOG) is among the few companies in the AI scene that has the potential to remain untouchable and unrivaled. Why? Let’s talk about this disruptive application that’s made global headlines (ChatGPT) which operates on something called Large Language Models (LLMs). It was Google’s engineers who authored a research paper called Attention Is All You Need back in June 2017 which laid the foundation for the transformer architecture, the architecture that powers all LLMs today. Alphabet Inc. (NASDAQ:GOOG) has a clear economic moat in AI, with its cloud platform (Google Cloud Platform), research lab (DeepMind), and large-scale data collection and processing capabilities. GOOG has the potential to remain an undisputed leader in an industry that’s expected to hit $1.8 trillion by 2030 (as per estimates by Grand View Research).
Apart from that, Alphabet Inc.’s (NASDAQ:GOOG) growth trajectory is remarkable. GOOG’s revenue has grown at a Compound Annual Growth Rate (CAGR) of 18.6% over the past 10 years and its net income has grown even more impressively, at a CAGR of 20.3% during the same period. GOOG is a blue-chip stock with high-teen growth rates that’s currently trading at 23.5 times its forward earnings, lower than its 5-year average multiple of 26x. While there may not be near-term multi-bagger potential to it now, it’s a long-term portfolio pick.
Alphabet Inc. (NASDAQ:GOOG) ranks 5th on our list. To discover Dan Loeb’s top growth stock picks, check out our free report on the 10 Best Growth Stocks to Buy According to Billionaire Dan Loeb. While we acknowledge the potential of GOOGL as an AI play, our conviction lies in the belief that some 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 on Insider Monkey.
