We recently published a list of the Top 10 Overbought AI Stocks in 2024. Since Alphabet Inc. (NASDAQ:GOOG) ranks 5th on the list, it deserves a deeper look.
The second half of 2024 is here and rate cuts from the Federal Reserve remain elusive, with warnings about valuations and AI-led market hype growing louder. A number of notable Wall Street analysts have recently warned that the markets remains more concentrated than ever where just a few stocks account for most of the gains, thanks to their dominance in the AI industry. Many also believe the market is up for a correction as it has entered the overbought territory. Financial services company BTIG recently said in a report that the world’s fifth-largest exchange-traded fund by assets under management (AUM), QQQ Trust Series 1, now trades “well into” overbought territory based on its Relative Strength Index technical indicator. QQQ tracks the Nasdaq-100 Index and it’s not surprising to see the ETF showing signs of being overbought as more and more investors pile into mega-cap tech stocks in order to ride the AI bandwagon.
For this article we scanned the holdings of the Invesco QQQ Trust Series 1 ETF and picked top technology holdings of the fund with higher Relative Strength Index (RSI) values. Usually, an RSI value of 60 and above shows a stock is overbought. We have also mentioned the number of hedge fund investors with these stocks. 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).
A laptop and phone open to Google’s services in an everyday setting.
Alphabet Inc (NASDAQ:GOOG)
Number of Hedge Fund Investors: 165
Alphabet Inc (NASDAQ:GOOG) is one of the top holdings of the QQQ which has entered the overbought territory according to financial services firm BTIG. Alphabet Inc (NASDAQ:GOOG) has a 14-day RSI value of 62, worse than 89.85% of the 600 companies in the interactive media industry, according to data from GuruFocus. However, many believe Alphabet Inc (NASDAQ:GOOG) is one of the most undervalued AI stocks right now based on its growth catalysts.
Alphabet Inc. (NASDAQ:GOOG) bulls believe the company is just getting started with AI product launches. Alphabet Inc. (NASDAQ:GOOG) is indeed in a strong position to develop an AI ecosystem around its products. For example, demos have shown that Gemini app will help people perform daily personal tasks like note taking, appointments, writing, etc. These features could easily be integrate with other Google apps. Alphabet Inc.’s (NASDAQ:GOOG) app is to urge users to sign up for ‘Google One AI Premium’ plan, which has a $19.99 price tag. Google saw advertising revenue accelerate in Q1 2024, boosted by YouTube in particular growing by almost 21% last quarter. Analysts also believe Alphabet Inc. (NASDAQ:GOOG) is in a strong position to offset any headwinds or lost market share in Google search with YouTube, which saw its ads revenue reach $8.1 billion in the first quarter, a 21% growth. Alphabet Inc.’s (NASDAQ:GOOG) net income in the period came in at $23.66 billion, up 57%, or $1.89 per share.
Weitz Investment Large Cap Equity Fund stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its first quarter 2024 investor letter:
“Mega-cap titans Meta Platforms, Alphabet Inc. (NASDAQ:GOOG) and Amazon generated outsized gains and were the Fund’s top relative contributors for the past 12 months. Following our valuation discipline, we continued to methodically rotate from more fully priced stocks to those trading at healthier discounts to our value estimates. We trimmed more tech-adjacent winners during the quarter, including Alphabet
Alphabet has been the most notable trim over the past two quarters. In effect, we removed the heavy overweight layer of the position size, which had been in the 6% to 8% range for most of the last five years. Part of the decision simply reflected valuation prudence after an exceptional period where the stock price ran well ahead of our estimate of business value growth. Some of it was a reality check that Google’s core search business may be less clearly unassailable than it appeared to be five to seven years ago. Our team also has adopted a healthy “prove it” approach to management/culture, capital allocation and future returns on a robust investment cycle. While Alphabet may no longer warrant standout overweight status, the stock remains one of the Fund’s largest holdings.”
Overall, Alphabet Inc. (NASDAQ:GOOG) ranks 5th on Insider Monkey’s list titled Top 10 Overbought AI Stocks in 2024. While we acknowledge the potential of Alphabet Inc. (NASDAQ:GOOG), our conviction lies in the belief that 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 Alphabet Inc. (NASDAQ:GOOG) but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These Stocks.
Disclosure: None. This article is originally published at Insider Monkey.
