We recently published a list of Cathie Wood’s 11 Favorite AI Stocks. Since Alphabet Inc. (NASDAQ:GOOG) ranks 9th on the list, it deserves a deeper look.
Cathie Wood’s flagship fund is continuing to face steep losses amid a broader pullback in technology stocks. Wood’s flagship fund ARK Innovation ETF (NYSEARCA:ARKK) is down about 18% so far this year and has lost about 75% of its value since hitting its peak in 2021. However, the latest data shows that the innovation-focused investor bought the dip on tech stocks after the latest selloff that shook financial markets globally.
Investors have pulled about $2.2 billion from ARK funds in 2024. The fund is on track to post its worst year of investor exodus since 2014. But Cathie Wood is doubling down on her innovation bets and is hopeful the upcoming rate cuts will be positive for the stock market.
Cathie Wood Says “Something Is Changing” and the Fed is Now on “High Alert”
Talking about the market situation, Cathie Wood said in a latest video on her YouTube channel that the recent selloff shows the market is going through a “cathartic” phase and “something is changing.”
“I do believe that the Fed now is on high alert because the stock market seemed to be encouraging the Fed to hold tight, higher for longer, make sure that the inflation was out of the system.”
Cathie Wood said that corporations are now in a weaker position amid high rates and they will initiate layoffs to cut costs and increase productivity. This weak employment situation could encourage the Federal Reserve to start cutting rates, according to Wood.
“Interest rates coming down should be very positive for the equity markets, but they will not arrest a recession very quickly. In fact, if consumers and businesses know that interest rates and maybe prices will be coming down, what will they do? They will wait.”
Cathie Wood’s ARK has posted its latest stock holdings data as of the end of the June quarter. For this article we scanned the fund’s latest portfolio and picked 11 AI stocks it has positions in. 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).
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Alphabet Inc Class C (NASDAQ:GOOG)
Cathie Wood’s Latest Stake Value: $23,359,454
Alphabet Inc Class C (NASDAQ:GOOG) shares slipped recently following reports that OpenAI is working on a web search product called SearchGPT. Before that, the stock fell following earnings despite posting strong numbers. Revenue in the second quarter jumped 14% year over year driven by search and Cloud. At a forward P/E of 22, analysts believe Alphabet Inc Class C (NASDAQ:GOOG) continues to be one of the cheapest AI stocks in the market as its valuation remains depressed amid fears caused by an overreaction.
Despite constant alarms going off about its search business, Alphabet Inc Class C (NASDAQ:GOOG) search revenue jumped about 13.7% in the second quarter year over year. As of the end of June, Google has about 91.06% share of the search engine market, just 1.65% lower than the December 2019 levels. With AI overviews and other search initiatives, Alphabet Inc Class C (NASDAQ:GOOG) will be able to stave off any competitors given its dominance in the market.
Cloud and YouTube are two key strong catalysts for Alphabet Inc Class C (NASDAQ:GOOG) shares. During the second quarter, Alphabet’s Cloud revenue rose 28.8% to $10.35 billion, crushing past analysts’ forecasts of $10.16 billion. Alphabet Inc Class C (NASDAQ:GOOG) is on the path to reach a $100 billion revenue run-rate from YouTube Ads and Google Cloud by the end of 2024.
The London Company Large Cap Strategy stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q2 2024 investor letter:
“Alphabet Inc. (NASDAQ:GOOG) – GOOG was a top performer this quarter as it reported strong Search revenue, tighter cost controls, and momentum in Cloud. Both direct and brand Search ads were better than expected and the strength in YouTube monetization continues. Expense controls have translated to 700bps of margin improvement. Management is removing layers to improve efficiency, which should drive margins higher. GOOG also provided details on paths to monetize Al for advertisers. GOOG initiated a dividend during the quarter to return additional cash to shareholders. It has a solid balance sheet, significant market share, and generates strong returns.”
Overall, Alphabet Inc. (NASDAQ:GOOG) ranks 9th on Insider Monkey’s list titled Cathie Wood’s 11 Favorite AI Stocks. 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 GOOG 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 at Insider Monkey.
