We recently published a list of 10 Large Cap Stocks Jim Cramer Can’t Stop Talking About. In this article, we are going to take a look at where Alphabet Inc. (NASDAQ:GOOG) stands against the other large cap stocks Jim Cramer can’t stop talking about.
In a recent episode of Mad Money, Jim Cramer highlights a critical gap in the American education system, which often overlooks financial literacy despite its importance. While students may graduate with extensive knowledge in subjects like chemistry, history, and languages, they rarely receive practical education on managing personal finances. Cramer emphasizes that financial planning, retirement readiness, and investing are seldom covered, leaving many people uninformed about crucial money management skills.
“There is a gaping hole in the American education system, although I hesitate even to call it a system. When you go to high school, they teach you chemistry, geometry, and physics. You have English classes, history classes, and foreign language classes. You can graduate from college speaking three languages with a deep understanding of quantum physics or ancient philosophy. But you know the one thing they almost never teach you in middle school or high school, let alone college? Financial literacy.
And I’m not talking about economics here—you could be an econ major and still learn nothing about financial planning or retirement readiness, let alone investing. Money is just not talked about. Frankly, it’s become the third rail of American education. You’re a thousand times more likely to read Marx’s “Das Kapital” than to read anything about planning a budget or picking stocks.”
Cramer’s mission is to bridge this gap through the CNBC Investing Club, where he and the Charitable Trust provide practical financial guidance. He stresses the significance of retirement planning, noting that while 401(k) plans and Individual Retirement Accounts (IRAs) are key tools for saving, many people lack comprehensive understanding of their benefits and limitations.
“That’s why I’m on a constant mission to teach you how to manage your money, which is what we do every day in the CNBC Investing Club, with the Charitable Trust providing a constant source of examples. When it comes to managing your money, nothing is more important than retirement. Sooner or later, you’re going to stop working—hopefully sooner rather than later, unless you really love your job. I’m betting most of you, even if you don’t own individual stocks, still have some money in a 401(k) plan.
Decades ago, corporate pensions started going the way of the dodo, and now the 401(k) is the main way that Americans save for retirement. They’re offered by your employer, and they’re among the greatest tax-deferred investment vehicles out there, along with the IRA. And I’m not talking about the Irish Republican Army—I’m not even talking about the Inflation Reduction Act, for that matter. I mean the Individual Retirement Account.”
Cramer points out that while contributing to a 401(k) is widely advised, it’s not always the best strategy for everyone. Despite its tax advantages and the ability to defer taxes on contributions, 401(k) plans can have drawbacks, such as hidden fees that diminish returns.
“Hear me out, darn it—you need to know this stuff. Your future self will thank you for getting your retirement funds in order. While you may think you know everything you need to know about these tax-favored accounts, the truth is there’s a lot the so-called experts don’t tell you or don’t want you to know. For example, conventional wisdom says that you absolutely must invest in your 401(k)—you’d have to be a fool not to contribute.
Many experts will even advise you to max out your 401(k) contributions every year if you can afford to. Right now, the maximum contribution is over 20 grand, with room for an additional 7 grand if you’re over 50. It tends to rise gradually over time, usually a little faster than inflation. In 2004, it was $13,000; by 2023, it was $22,500. Either way, that’s a serious chunk of change, even with these contributions coming from your pre-tax income.”
He argues that understanding both the benefits and the shortcomings of these retirement accounts is essential for making informed financial decisions. Cramer encourages individuals to educate themselves about these investment options to ensure their retirement savings are managed effectively.
“However, sometimes I think it can be the wrong approach. I’m not going to sing the praises of the noble 401(k) plan or tell you it’s the key to your financial salvation because 401(k) plans can be a real mixed bag. Sure, they have a couple of really great features, but they also have a lot of bad ones, and those problematic features will eat away at your returns—sometimes through fees that are almost totally hidden from you. I do not like that. So let me lay out the good, the bad, and the ugly of 401(k) plans. Then I’ll tell you whether it makes sense for you to contribute more money to your own 401(k)—maybe there’s a better way for you to invest for retirement.”
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A laptop and phone open to Google’s services in an everyday setting.
Alphabet Inc. (NASDAQ:GOOG)
Number of Hedge Fund Investors: 165
Market Capitalization: 1.94T
Jim Cramer notes that Alphabet Inc. (NASDAQ:GOOG)’s recent concerns about not making acquisitions are driven by the fear of Meta Platforms, Inc. (NASDAQ:META) potentially surpassing them. According to Cramer, Alphabet Inc. (NASDAQ:GOOG)’s hesitation is rooted in a specific worry: that Meta Platforms, Inc. (NASDAQ:META) could catch up and overtake Google in the competitive landscape.
“Google isn’t buying because they’re worried that the other guys might do something. They’re specifically worried that Meta is going to catch and pass them and they should be.”
Alphabet Inc. (NASDAQ:GOOG)’s latest earnings report reveals a strong financial performance, with revenue reaching $84.7 billion, a 14% increase from the previous year. This growth was fueled by exceptional results in its key areas, such as Search and Cloud. Alphabet Inc. (NASDAQ:GOOG)’s operating income surged to $27.4 billion, while net income climbed to $23.6 billion, showcasing significant improvement. The Search business was particularly successful, contributing $73.9 billion in revenue, and YouTube advertising grew by 13% to $8.66 billion.
Additionally, the Cloud segment performed remarkably well, with revenue increasing by 28.8% to $10.35 billion and achieving over $1 billion in quarterly operating profit for the first time. Alphabet Inc. (NASDAQ:GOOG)’s commitment to investing in artificial intelligence (AI) enhances its growth prospects. Alphabet Inc. (NASDAQ:GOOG)’s focus on advancing AI within its Search and Cloud services is expected to yield substantial returns as AI becomes more widely adopted across various sectors. While there are some challenges in its Network ads segment, Alphabet Inc. (NASDAQ:GOOG)’s strong performance in Search, Cloud, and AI positions it well for ongoing growth and profitability.
Baron Fifth Avenue Growth Fund stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q2 2024 investor letter:
“We also added to Alphabet Inc. (NASDAQ:GOOG). The company reported solid financial results with first quarter revenue growth of 15% year-over-year, driven by 14% growth in search, 21% growth in YouTube, and 28% growth in cloud (which accelerated from 26% growth in the fourth quarter). The company has also increased its cost discipline efforts, which drove operating margins to 31.6% (compared to 25% in the first quarter of 2023). With regards to GenAI, while we are cognizant of the potential risks to the dominance of search, we believe that on the range of outcomes, Alphabet remains well positioned through its massive user distribution (9 products with over 1 billion users each), long-standing AI research labs (DeepMind and Google Brain), top AI talent, a solid cloud computing division in Google Cloud, and deep pockets for investing in AI.
During the quarter, Alphabet also held its annual I/O conference, where it provided an update on its efforts in AI including: Gemini is now used by 1.5 million developers; model quality is expanding rapidly (e.g., context window is now 2 million tokens of length); the new genomics model, Alphafold 3 can predict structures of molecules and potentially accelerate drug discovery; new TPU6 AI chips has shown a 4.7 times improvement in compute performance compared to the prior generation; and Gemini for workspace is showing early data on a 30% increase in user productivity. Alphabet also has real value in assets such as Waymo, which are not factored into valuation today (and are potentially included at a negative valuation as they currently generate losses, hurting EPS). We continue to believe that the current valuation of Alphabet presents an attractive risk/reward for long-term owners of the business and have therefore increased our position.”
Overall GOOG ranks 4th on our list of the large cap stocks Jim Cramer can’t stop talking about. While we acknowledge the potential of GOOG as an investment, 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 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.
