1. Alphabet Inc. (NASDAQ:GOOG)
Number of Hedge Fund Holders: 165
It appears that the Justice Department may be aiming to break up Google, as the Alphabet Inc. (NASDAQ:GOOG)-owned company is set to face another antitrust trial starting Monday. After losing its search trial, Google now faces allegations regarding its advertising practices. Jim Cramer expressed frustration with Alphabet Inc. (NASDAQ:GOOG)’s stock performance but shared reasons on Thursday for staying invested in the company, at least for now.
“Does the Justice Department want to break up Google? It sure seems like it as the Alphabet -owned company gets ready to face another antitrust trial that starts Monday. Google lost its search trial. This second trial involves allegations around its advertising model. I have been frustrated with Alphabet stock but gave reasons Thursday to stay the course, for now.
A bullish outlook for Alphabet Inc. (NASDAQ:GOOG) is supported by its leadership in AI, Google Cloud, and search advertising, along with strong earnings growth and potential for increased valuation. Alphabet Inc. (NASDAQ:GOOG)’s advancements in AI, especially through its Gemini AI platform, have strengthened its position in generative AI. Alphabet Inc. (NASDAQ:GOOG)’s plans to monetize AI through subscription services are expected to boost revenue and enhance valuation over time.
Alphabet Inc. (NASDAQ:GOOG)’s financial performance was impressive in the second quarter of 2024, with $84.74 billion in revenue and $23.62 billion in net income, largely driven by Google Cloud and its strong search advertising business. Analysts predict a significant rise in earnings per share, estimating around $7.50 for 2024. Currently, Alphabet Inc. (NASDAQ:GOOG) is trading below its tech peers, suggesting a potential increase in valuation if earnings growth continues and AI integration succeeds.
Analysts have set high price targets, indicating substantial stock price appreciation. Overall, Alphabet Inc. (NASDAQ:GOOG)’s strategic position and robust financial results provide a solid foundation for positive expectations and future growth.
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.”
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 timeframe. If you are looking for an AI stock that is more promising than the ones on our list but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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