We recently published a list of the 12 Best AI Stocks Leading the ‘Big Tech Race’ to $4 Trillion According to a Famous Wall Street Analyst. Since Alphabet Inc. (NASDAQ:GOOG) ranks 5th on the list, it deserves a deeper look.
Wedbush Securities analyst Dan Ives has said in a fresh note that major tech giants are now running in a “race” to capture the $4 trillion AI market, calling GPUs the new “oil” or “gold” in the technology sector. Ives said that the AI “party” is just getting started and the clock is showing “9p.m. in a party going till 4 a.m. with the rest of the tech world now joining.” Ives thinks spending on GPUs and data centers is the “only game in town.” Ives thinks the “first wave” of AI benefited major technology giants leading the AI race, with the second, third and fourth “derivatives” beginning to show trickle-down effects on other companies.
In a separate investing event, Ives recently predicted that the AI-led bull run can last for another two to three years, saying in a year from now investors will be looking at $3 trillion to $4 trillion market caps for major tech companies.
“The tech bull market is just starting,” Ives reportedly said.
In his latest note Ives highlighted several stocks which he believes can benefit from the AI revolution. In this article we take a detailed look at these stocks and discuss their AI-related growth catalysts and see whether or not they are sound long-term investments. With each stock we have mentioned hedge fund sentiment. 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
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 market is not incorporating Alphabet Inc.’s (NASDAQ:GOOG) growth in Cloud, Other Bets, Video and other high growth initiatives. The stock is trading 20x Alphabet Inc.’s (NASDAQ:GOOG) 2025 EPS estimate of $8.57. This multiple makes the stock look attractively valued since the Wall Street expects Alphabet Inc. (NASDAQ:GOOG) earnings to grow by 13.40% in 2025 and by 19% over the past five years on a per annum basis.
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 12 Best AI Stocks Leading the ‘Big Tech Race’ to $4 Trillion According to a Famous Wall Street Analyst. 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.
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Disclosure: None. This article is originally published at Insider Monkey.