1. Alphabet Inc Class C (NASDAQ:GOOG)
Number of Hedge Fund Investors: 160
Jim Cramer in a latest program on CNBC reiterated his concerns about Alphabet Inc Class C (NASDAQ:GOOG) amid the impact of AI on search. Here is what he said:
“You know, I got to tell you, the more I look at it, the more I am concerned that they bought the Wiz. And I’m concerned, why am I concerned? Because I stopped going to Google. I can’t be alone. There’s just other places to go to.”
The market is reluctant about Alphabet amid threats to its search business from AI and the company’s aggressive AI spending plans $75 billion Capex for 2025). However, GOOG bulls believe these investments will pay off. The company needs to spend to maintain its dominance in search. Its Gemini model has an edge over competitors because of the huge ecosystem Alphabet already has. For the end user, it’s easier to switch from traditional search to Geminin instead of moving to a completely new app like ChatGPT or Perplexity. So far AI competition hasn’t dented the company’s search revenue.
Alphabet is in a position to offset any declines in traditional search by focusing on its booming YouTube business. YouTube could be worth up to $550 billion, according to a new MoffettNathanson note.
“This ranking, which measures total TV viewing across both linear and streaming platforms, underscores YouTube’s dominance in capturing audience engagement, surpassing traditional broadcast (and cable) giants like Disney, Fox, Paramount, and NBCU, as well as streaming leader Netflix,” analyst Michael Nathanson wrote in a note. “For this and several other reasons, we crown YouTube the ‘New King of All Media.’”
By the end of 2024, YouTube was the second-largest media company by revenue at $54.2 billion, trailing only Disney.
In the fourth quarter, Alphabet’s operating margin rose 32%. YouTube ad revenue jumped 14% and Cloud revenue skyrocketed by 30.1%. Google raked in $12.8 billion in FCF, marking a roughly 215% growth compared to the same period last year, despite heavy investments in AI. The stock has a forward (2026) P/E ratio of 20.8x, which makes it about 22% cheaper than the average company in its sector.
Burke Wealth Management stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q4 2024 investor letter:
Alphabet: We parted ways with long-term holding Alphabet during the fourth quarter. We’ve owned Alphabet since the inception of the Focused Growth strategy so obviously, the company has many positive attributes that we admire. That remains the case. We have long contended that Google search is the best business in the world. However, developments over the past couple of years on the competitive front (generative AI search) and the regulatory/legal front have put the sustainability of Google’s search monopoly at legitimate risk for the first time since Microsoft launched Bing in 2009. We cut our weighting in Google in half last year as we wanted to take some time to better assess the threat of generative AI driven search to its business model. To be fair, this emerging threat has been something more akin to a gathering storm than a tornado. Capital continues to flow into the space both from start-ups and the Microsoft/Open AI collaboration. Thus far, this has not resulted in a material erosion of market share but it is certainly something requiring continued monitoring….” (Click here to read the full text)
While we acknowledge the potential of Alphabet Inc. (NASDAQ:GOOG), our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. 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: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
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