We recently published a list of 10 Best AI Stocks to Buy Based on New AI ETF. Since Alphabet Inc. (NASDAQ:GOOG) ranks 5th on the list, it deserves a deeper look.
Over the past few months the market has seen a massive influx of AI-related ETFs as investors look to ride the bandwagon of AI investing. A report from Wall Street Journal in June said that all ten AI ETFs tracked by website ETF.com saw inflows this year. One major AI ETF, launched by Roundhill, saw its assets grow to $35 million from under $1 million in just two weeks.
Amid the craze of AI ETFs, does it make sense to start investing in every new ETF? Analysts offer some guidance. A Wall Street Journal report quoted Morningstar analyst Kenneth Lamont, who said that we should look for “thematic purity” while investing in AI ETFs. The ETF you choose, according to the analyst, must be investing in “bellwether” stocks positioned to benefit from the AI industry trends.
There is a new AI ETF in town. KraneShares Artificial Intelligence and Technology ETF (AGIX), launched earlier this month, tracks the Solactive Etna Artificial General Intelligence Index, which captures the performance of AI tech companies. The index seeks exposure to three main AI categories: hardware, infrastructure, and applications. The index picks companies by assigning AI Exposure Score, which assesses each company’s relevance to AI tech. You can get exposure to AI companies focusing on data centers, LLMs, AI tech to reduce costs and improve customer experience.
In this article, we will discuss the top 10 holdings of this new AI ETF and see whether they have the potential to rise in the coming months and weeks. 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).
Alphabet Inc Class A (NASDAQ:GOOG)
Number of Hedge Fund Investors: 165
Alphabet Inc Class A (NASDAQ:GOOG) is the seventh biggest holding of KraneShares Artificial Intelligence and Technology ETF (AGIX).
Deepwater’s Gene Munster thinks that Alphabet Inc Class C (NASDAQ:GOOG) 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. 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.
Polen Focus Growth Strategy stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q2 2024 investor letter:
“The top absolute contributors were Alphabet Inc. (NASDAQ:GOOG), Microsoft, and Amazon. Turning briefly to positions we do own, Alphabet represented our top absolute contributor. The stock responded positively to attractive across-the-board results that beat expectations, with excitement around GenAI driving growth in its cloud business. Additionally, the company introduced a dividend and announced an additional $70B share buyback, beginning to show prudent capital allocation discipline in our view.”
Overall, Alphabet Inc. (NASDAQ:GOOG) ranks 5th on Insider Monkey’s list titled 10 Best AI Stocks to Buy Based on New AI ETF. 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.
