We recently published a list of Jim Cramer is Talking About 10 Falling Stocks Amid Latest Market Rotation. Since Alphabet Inc. (NASDAQ:GOOG) ranks 5th on the list, it deserves a deeper look.
Jim Cramer in a program last week tried to make sense of the decline in tech stocks, saying companies with the “best fundamentals” got “hammered once again.”
“I did not expect that to happen.”
Cramer said that sometimes it’s difficult to own the “winners.” The CNBC host said it’s important to understand the bear cases around stocks otherwise you will never know what “you are up against.”
Jim Cramer tried to find out whether the latest decline in top tech stocks was just a “periodic selloff” that presented an “opportunity.”
“When we get this kind of rotation, you never know whether these stocks are selling off because there’s something wrong or because they are up huge.”
Jim Cramer pointed to a caveat when it comes to holding winning stocks. When you have the losers, there are no profits, but when you own winners in your portfolio, you can see losses because people want to take some profits off the table, Cramer said.
The CNBC host said when top stocks go down, people holding those in their portfolios often end up thinking about whether they should also sell these stocks and if something has “changed.”
“From what I can tell you, nothing has changed about the stocks we are going talk about tonight. But it is true that the stocks are a heck of a lot more expensive than they were one year ago.”
In this program, we took a look at some top tech stocks that fell last week and explained the reasons they lost value according to Jim Cramer. We also discussed these companies’ fundamentals and 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).
Alphabet Inc Class C (NASDAQ:GOOG)
Number of Hedge Fund Investors: 165
Jim Cramer, while trying to analyze the reasons behind Alphabet Inc Class C (NASDAQ:GOOG) latest fall, said that Alphabet is “cheap” and the ad market is “fantastic” while YouTube is “killing” it. But why did the stock go down?
Cramer said people are noticing that Alphabet Inc Class C (NASDAQ:GOOG) search business might be in trouble amid the rise of ChatGPT and other language models.
“Perhaps people think wait a second, I am using their AI platform as well as Microsoft’s, so are their regular search numbers are going down. It’s a legitimate question, I know I use search much less, I go to ChatGPT. Many other people are doing the same thing. What happens, people want to sell first and get their questions answered later whether their search is being hurt by AI.”
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 Jim Cramer is Talking About 10 Falling Stocks Amid Latest Market Rotation. 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.
