We recently compiled a list of the 8 Best FAANG 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 FAANG stocks to buy according to analysts.
“We Are Just at the Beginning of the AI Buildout”
Each of the big tech stocks has revealed its plans to invest $50 to $100 billion in GPU compute, evidence that Artificial intelligence may be the biggest theme right now. On October 21, Ray Wang, Constellation Research’s principal analyst, founder, and chairman, joined CNBC’s ‘Squawk Box’ to share his stance on the tech sector, especially the Magnificent Seven, and the role of artificial intelligence.
The third quarter earnings season is upon us some of the mag seven are yet to report their quarterly results. Wang suggests artificial intelligence is just beginning to pan out and will stand as the major theme for a long while. He adds that companies, among the mega-caps, have poured hundreds of billions into AI during the first half of the year, and plan to add more during the second. He also shared that these mega-cap companies are driving demand as well.
READ ALSO: Jim Cramer’s Game Plan: 23 Stocks to Watch and 10 AI Stocks to Watch for the Rest of 2024.
While these expenditures may seem to have little to no payoff, historically investors were also worried about companies investing in the Internet. However, Wang dissects that the internet is not the same as artificial intelligence. The internet was rather open and decentralized and had many winners. AI, on the other hand, is more centralized, closed, and expensive, meaning that only a few players are going to make a mark.
Wang also shares that he owns all of the magnificent seven stocks. An interesting conjunction, highlighted by Wang, is that across search, social media, and commerce, most of the stocks in the Mag 7 have digital ads. Across all these three avenues, the next players cannot compete with the Magnificent Seven, especially in terms of revenue. On the regulatory front, he emphasized that the sector needs some relief. He adds that the tech sector needs to play out mergers and currently IPOs are lined up, explaining why everything is on hold.
FAANG is an acronym, which originally began as FANG, consisting of five major technology companies. The original term, FANG was coined by Jim Cramer in 2013 because, according to him, the four tech stocks belonged together as they functioned across similar themes of digitization and the web. FAANG today is much broader and includes technology companies that are shaping the future, which may also be categorized as the magnificent seven. That said, let’s take a look at the 8 best FAANG stocks to buy according to analysts.
Our Methodology
To come up with the 8 best FAANG stocks to buy according to analysts, we went over the NYSE FANG+ index and picked the latest holdings. We then examined the stocks and picked the ones with the highest analyst upside potential as of October 22, 2024. We also added the hedge fund sentiment of each stock as of Q2 2024. The list is in ascending order of analyst upside primarily and hedge fund holders, as of Q2 2024, secondarily.
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).
Alphabet Inc. (NASDAQ:GOOGL)
Analyst Upside as of October 22, 2024: 24.3%
Number of Hedge Fund Holders: 216
Alphabet Inc. (NASDAQ:GOOGL) is one of the biggest technology companies in the world that ranks first on our list of the best FAANG stocks to buy according to hedge funds. It owns a range of products, including Google Search, Google Maps, YouTube, Google Cloud, and Wyamo.
On October 14, the company signed an agreement to purchase nuclear energy from small modular reactors to be developed by Kairos Power. The first phase of work is expected to bring small modular reactors online by 2030, followed by consequent developments through 2035. The deal will promise 500 megawatts of carbon-free energy to electricity grids in the United States.
Alphabet’s (NASDAQ:GOOGL) performance in Q2 2024 was largely driven by its growing momentum in search and cloud. The company logged nearly $85 billion in revenue, of which search and cloud exceeded $10 billion for the first time in quarterly revenue. In addition to that, the company’s processing units make up nearly 20% of the market, and market share is likely to expand as advancements continue.
To shed light on Alphabet’s (NASDAQ:GOOGL) position, Angelo Zino, CFRA Research Senior Equity Analyst, appeared in an interview on Yahoo Finance. Zino suggests that the company had been in beta mode for a long time and is now advancing towards AI at full speed. He adds that the company is excelling in every aspect of AI and is the ultimate consumer company, functioning as the internet.
Patient Capital Management mentioned Alphabet Inc. (NASDAQ:GOOG) in its Q2 2024 investor letter:
“Alphabet Inc. (GOOGL) was a top contributor in the second quarter, finally catching up to its peers in the Magnificent 7. The company gained 20.8% in the period following strong first quarter earnings, a new $70B repurchase program (3% of shares outstanding) and the initiation of a cash dividend ($0.20 per share; 0.42% yield). We continue to believe the market underappreciates Google’s exposure to AI with its Gemini model being integrated into search results, YouTube advertising and its cloud offering. We continue to think that the cloud players will be the AI winners in the long-term, with Google being well positioned to take advantage. While the company trades at 24x 2024 earnings, if you remove the money-losing and under-earning businesses, you realize that you are paying below a market multiple for the core Google business. We do not believe there are many other AI winners trading at such an attractive multiple.”
Overall GOOGL ranks 1st among the 8 best FAANG stocks to buy according to analysts. While we acknowledge the potential of GOOGL as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. 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.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article is originally published at Insider Monkey.