We recently published a list of Famous Analyst Says You Should Buy the Dip on These AI Stocks. Since Alphabet Inc. (NASDAQ:GOOG) ranks 2nd on the list, it deserves a deeper look.
Gene Munster, managing partner at Deepwater Asset Management, said in a latest interview with CNBC that the key reason behind the latest decline in tech stocks was major companies projecting high CapEx and giving no updates on AI monetization. Munster, however, thinks AI spending is necessary for these companies to reap rewards in the future. Munster referred to a latest interview of Mark Zuckerberg in which he said if his company does not keep spending on AI it may miss the biggest opportunity in the next 10-15 years. Munster said Zuckerberg believes this AI spending “cannot slow down.”
“I am most optimistic because that CapEX number, if you’re gonna boil it down to one point, it’s gonna be higher for longer and it’s good for AI.”
Asked whether investors should stick with mega-cap AI stocks or move on to smaller companies that could benefit from this AI spending, Munster said that depends on to what degree you believe in the transformative power of AI.
“If you are in my camp.. which I think it (AI) will be more transformative than the internet, then small companies and the big companies are going to participate.”
Munster thinks the AI-led bull market could last for 3-5 years before ending in what he called a “spectacular bubble burst.”
For this article we picked the AI stocks Gene Munster and his firm Deepwater Asset Management hold, according to the disclosures on CNBC. With each stock we have mentioned the number of hedge fund investors. 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).
Pixabay/Public Domain
Alphabet Inc Class C (NASDAQ:GOOG)
Number of Hedge Fund Investors: 165
Gene Munster in his latest interview reiterated his bullish take on Alphabet, saying the company is best positioned for AI monetization thanks to the huge “distribution” advantage due to billions of users of its products.
Munster also said recently that Alphabet is going to win the “AI arms race.” While talking to CNBC, the analyst said that Google search business is “intact, no need to worry.” Munster’s thesis is based on his in-depth testing of several large language models and chatbots including Google’s Gemini. Munster also thinks other chatbots do not offer a strong imperative for users to switch from Google search as of yet.
Wedbush’s Dan Ives in a fresh note named Alphabet Inc (NASDAQ:GOOG) as one of the stocks that can benefit from the AI boom.
According to a latest UBS report, Alphabet Inc (NASDAQ:GOOG) falls in all three layers of the AI value chain – enabling, intelligence and application layer. Alphabet Inc (NASDAQ:GOOG) is an AI enabling player because of its Tensor Processing Units (TPUs) and Google Cloud Platform, while Gemini makes it a key player in the intelligence layer. On the application layer, UBS believes Alphabet Inc (NASDAQ:GOOG) has an edge with its Duet AI assistant and advertising. All these catalysts make Alphabet Inc (NASDAQ:GOOG) a company that could benefit from the $1.2 trillion AI opportunity by 2027, UBS said.
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 integrated with other Google apps. Alphabet Inc.’s (NASDAQ:GOOG) app urges users to sign up for ‘Google One AI Premium’ plan, which has a $19.99 price tag.
Vulcan Value Partners stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q2 2024 investor letter:
“There was one material contributor to performance: Alphabet Inc. (NASDAQ:GOOG). During the first quarter, Alphabet’s revenue growth accelerated and margins expanded. The company continues to introduce new search pathways with advanced models and algorithms that are 100 times more efficient than they were 18 months ago. Disruption risks to core search from generative AI have not completely abated, but Alphabet’s technical prowess and historical investments in leading technologies are becoming more apparent.”
Overall, Alphabet Inc. (NASDAQ:GOOG) ranks 2nd on Insider Monkey’s list titled Famous Analyst Says You Should Buy the Dip on These 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.
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.
