In this article, we’ll explore Jim Cramer’s Top 10 Hottest Stock Picks.
In a recent post of Jim Cramer’s Morning Thoughts, he highlighted the impact of recent economic data on market sentiment. The S&P 500 is poised to fall for the fourth day in a row, following a weaker-than-expected August jobs report. The report revealed that the U.S. economy added 142,000 jobs last month, falling short of the Dow Jones estimate of 161,000.
“The S&P 500 is tracking for a fourth straight day of declines after the highly anticipated August jobs report came up short. Bond yields also moved lower on the report. The U.S. economy added 142,000 jobs in August, less than the Dow Jones estimate of 161,000, while the unemployment rate ticked down to 4.2% as expected.” Cramer said.
Despite this shortfall, the unemployment rate dropped to 4.2%, aligning with predictions. Additionally, the job gains for June and July were revised downwards. As a result, traders are now split between anticipating a standard 25 basis point interest rate cut and a more substantial 50 basis point reduction at the Federal Reserve’s upcoming meeting on September 18.
“Job gains in the June and July reports were also revised down Friday. Traders were split roughly evenly between a traditional 25 basis point interest rate cut and a larger 50 basis point reduction at the Federal Reserve’s policy meeting on Sept. 18.”
“We Got What We Wanted, But the Market Crashed”
In a recent episode of Mad Money, Jim Cramer discussed how September 6 turned out to be a disappointing trading day. Despite hopes from bullish investors for a weak non-farm payrolls report that would encourage the Federal Reserve to cut rates, the actual report met these expectations.
“What an ugly day. Just hideous. We came into today knowing we’d have a critical non-farm payrolls report. If you were a bull, you wanted to see weaker-than-expected hiring with wages pretty much in line, because that’s what the Fed needs to see before it can start cutting rates. Voila, we got exactly what we wished for. Maybe we should have been careful, though, because as soon as we got what we wanted, the bulls vanished and the sellers came out of the woodwork, crushing practically everything.” Said Cramer.
Jim Cramer pointed out that September is historically a weak month for the market due to significant profit-taking. Although it might seem circular to link September’s weakness to profit-taking, it’s more reasonable than attributing it solely to fears of a severe economic slowdown. Cramer emphasized that, despite the market’s dips, big tech companies, especially those involved in key trends like data centers and accelerated computing—should be considered as buying opportunities during these times.
“This market has a September problem. Come September, we’re always hit with a tremendous amount of profit-taking, which is why it’s the weakest month of the year. I know that’s somewhat circular reasoning—we sell because we’ve always sold—but it makes more sense than saying people sold tech because they fear a hard landing. Tech, especially big tech, is something you buy, not sell, into weakness if you’re worried about a more severe slowdown.
Why? Well, because big tech is all about powerful secular themes that can keep going even during a recession—and we’re not getting one. I’m talking about the data center, accelerated computing—they’re not going anywhere. Nevertheless, when anything jars the big tech themes of the moment, the market’s reaction is swift, harsh, and horrible.”
Jim Cramer Urges Investors: “Do Not Abandon Ship”
Jim Cramer discussed the upcoming release of the Consumer Price Index (CPI) on Wednesday, which will offer new insights into inflation. He noted that if inflation stays steady or falls, the Federal Reserve will have more room to cut interest rates, which could help prevent a recession and address concerns from many sellers. Cramer encouraged investors to remain confident and avoid abandoning their positions due to these uncertainties.
“Wednesday, we get another read on inflation—this time from the Consumer Price Index. What can I say? As long as inflation stays the same or goes lower, the Fed has plenty of leeway to cut interest rates and prevent a recession—the thing so many sellers are worried about. That’s why I keep telling you, please do not give up the ship here.”
Our Methodology
The article reviews Jim Cramer’s recent Morning Thoughts, where he recommended various stocks. It highlights ten companies he featured and examines how hedge funds perceive these companies. The list ranks these companies from the least owned to the most owned by hedge funds.
At Insider Monkey we are obsessed with 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).
Jim Cramer’s Top 10 Hottest Stock Picks
10. Stanley Black & Decker Inc. (NYSE:SWK)
Number of Hedge Fund Holders: 24
Morgan Stanley has given Stanley Black & Decker Inc. (NYSE:SWK) an “equal weight” rating with a price target of $107. Jim Cramer mentioned that they own Stanley Black & Decker Inc. (NYSE:SWK) for the trust, viewing it as a potential beneficiary from future Federal Reserve interest rate cuts.
“Stanley Black & Decker got an equal weight hold rating and a $107 price target from Morgan Stanley. We own it as a play on Fed interest rate cuts.”
Stanley Black & Decker Inc. (NYSE:SWK) is an attractive investment due to its improved earnings outlook, effective cost-cutting measures, and strong cash flow. Stanley Black & Decker Inc. (NYSE:SWK) has raised its full-year 2024 adjusted earnings per share (EPS) forecast to $3.70 to $4.50, showing confidence in its cost-saving and supply chain improvements. Even though revenue declined by 3% year-over-year in Q2 2024, Stanley Black & Decker Inc. (NYSE:SWK) exceeded expectations with an adjusted EPS of $1.09, thanks to strong margin management. Stanley Black & Decker Inc. (NYSE:SWK)’s supply chain transformation is expected to save up to $1.5 billion by the end of 2024, and $2 billion by 2025.
With a P/E ratio of around 23.42, Stanley Black & Decker Inc. (NYSE:SWK) is considered attractively valued relative to its earnings potential. Stanley Black & Decker Inc. (NYSE:SWK) is also focusing on reducing short-term debt and generating significant free cash flow, which will improve financial flexibility and support further debt reduction and shareholder returns. Despite some revenue challenges, Stanley Black & Decker Inc. (NYSE:SWK)’s restructuring efforts, enhanced profitability, and strong market position, especially in its Tools & Outdoor segment, support a positive outlook.
9. MicroStrategy Incorporated (NASDAQ:MSTR)
Number of Hedge Fund Holders: 26
Barclays initiated coverage on MicroStrategy Incorporated (NASDAQ:MSTR) with a “buy” rating and a price target of $146 per share, highlighting the company’s unique business model tied to cryptocurrency. Jim Cramer pointed out that, in his view, MicroStrategy Incorporated (NASDAQ:MSTR) is essentially a bet on the crypto market.
“Barclays likes MicroStrategy, starting the stock with a buy-equivalent and a $146-per-share price target. The analysts cite MicroStrategy’s unique business model that taps into crypto. I think it is just a play on crypto.”
MicroStrategy Incorporated (NASDAQ:MSTR) presents a strong investment case due to its significant Bitcoin holdings, recent index inclusions, and innovative blockchain projects. As of Q2 2024, MicroStrategy Incorporated (NASDAQ:MSTR) owns 226,500 BTC, valued at around $14.7 billion, and has recently added 12,222 BTC to its portfolio. This substantial Bitcoin investment offers direct exposure to potential cryptocurrency gains, appealing to Bitcoin investors. MicroStrategy Incorporated (NASDAQ:MSTR)’s recent inclusion in the Russell 1000 Index and the MSCI World Stock Index enhances its credibility and may attract more institutional interest.
Additionally, MicroStrategy Incorporated (NASDAQ:MSTR) is advancing blockchain technology with initiatives like the “Orange Protocol,” which focuses on decentralized identification on the Bitcoin network. Despite a Q2 2024 net loss of $123 million and a 7% drop in revenue, MicroStrategy Incorporated (NASDAQ:MSTR)’s 10:1 stock split and “Bitcoin Yield” performance indicator reflect its commitment to shareholder value. MicroStrategy Incorporated (NASDAQ:MSTR)’s planned $2 billion equity offering for further Bitcoin purchases underscores its focus on expanding its Bitcoin holdings.
Artisan Small Cap Fund stated the following regarding MicroStrategy Incorporated (NASDAQ:MSTR) in its Q2 2024 investor letter:
“Regarding MicroStrategy Incorporated (NASDAQ:MSTR), our decision to avoid this company comes down to a lack of conviction in its franchise characteristics. The stock has worked this year due to a rebound in the price of bitcoin. Since 2020, MicroStrategy has been focused on converting its cash and cash equivalent holdings, as well as issuing debt, to fund the purchase of bitcoin, which now makes up most of the company’s value.”
8. Coinbase Global Inc. (NASDAQ:COIN)
Number of Hedge Fund Holders: 45
Barclays upgraded Coinbase Global Inc. (NASDAQ:COIN) from a “sell” to a “hold” rating, stating that the company’s business model has become more mature. Jim Cramer noted the shift, reflecting Barclays’ recognition of Coinbase Global Inc. (NASDAQ:COIN)’s growth and development in the crypto space.
“Barclays goes to hold from selling on crypto stock Coinbase saying their business models have matured.”
Coinbase Global Inc. (NASDAQ:COIN) presents a strong investment opportunity for 2024 due to its resilience in tough market conditions, diversified revenue streams, and positive regulatory outlook. Despite a drop in global crypto trading volumes, Coinbase exceeded revenue and adjusted earnings expectations in Q2 2024, showing strong operational performance. Coinbase Global Inc. (NASDAQ:COIN)’s shift toward subscription and service-based revenue, which hit record highs, reduces its dependence on transaction fees and enhances revenue stability.
Additionally, growing optimism about potential regulatory clarity in the U.S. is expected to attract more institutional investors, boosting Coinbase Global Inc. (NASDAQ:COIN)’s long-term growth prospects. Overall, Coinbase Global Inc. (NASDAQ:COIN)’s ability to adapt, diversify revenue, and improve the regulatory environment creates a promising outlook for continued success in the evolving cryptocurrency market.
Patient Capital Opportunity Equity Strategy stated the following regarding Coinbase Global, Inc. (NASDAQ:COIN) in its Q2 2024 investor letter:
“Coinbase Global, Inc. (NASDAQ:COIN) was a top detractor following cryptocurrencies lower throughout the quarter. While cryptocurrencies are going through a digestion period following the all-time high reached by Bitcoin in March, we believe it is still the early innings for institutional adoption and exposure to cryptocurrencies. We believe Coinbase continues to solidify its position as the platform of choice for the crypto-ecosystem and will benefit from this increasing demand over time.”
7. Super Micro Computer Inc. (NASDAQ:SMCI)
Number of Hedge Fund Holders: 47
JPMorgan downgraded Super Micro Computer Inc. (NASDAQ:SMCI) from a “buy” to a “hold” rating, citing concerns following the allegations made by Hindenburg Research. The analysts believe it’s not worth fighting against these claims. As a result, JPMorgan significantly lowered its price target for the AI server company, reducing it from $950 to $500 per share, reflecting Super Micro Computer Inc. (NASDAQ:SMCI)’s sharp decline. Jim Cramer pointed out that the downgrade reflects the major impact of the allegations on what was once a high-performing stock.
“JPMorgan downgraded Super Micro Computer to a hold-equivalent rating from a buy. The analysts said it’s not worth battling after the Hindenburg Research allegations. JPMorgan made a catch-up cut on its price target for the AI server company, going to $500 per share from $950 to reflect the break down of this once-high flying stock.”
Super Micro Computer Inc. (NASDAQ:SMCI) presents a strong investment case due to its impressive financial results, promising growth forecasts, and potential for significant stock appreciation, despite recent volatility and concerns from short-sellers. For fiscal year 2024, Super Micro Computer Inc. (NASDAQ:SMCI) reported remarkable growth, with net sales rising to $14.9 billion from $7.1 billion the previous year and net income increasing by over 82% to $352.7 million.
This growth is driven by Super Micro Computer Inc. (NASDAQ:SMCI)’s expanding role in data center and AI server solutions, which are in high demand. Analysts expect Super Micro Computer Inc. (NASDAQ:SMCI) to continue growing, with a projected annual revenue increase of 47.5% and a 48.2% rise in earnings per share over the next year. Currently trading around $386, the stock is seen as undervalued, with price targets suggesting potential gains of up to 100%. Although a recent short-seller report caused a temporary drop in the stock price, Super Micro Computer Inc. (NASDAQ:SMCI)’s adherence to GAAP standards and its shift to upfront revenue recognition due to subscription services might make the dip a good buying opportunity.
Polen U.S. Small Company Growth Strategy stated the following regarding Super Micro Computer, Inc. (NASDAQ:SMCI) in its Q2 2024 investor letter:
“The second largest contributor to the Portfolio’s relative performance was Super Micro Computer, Inc. (NASDAQ:SMCI), a provider of high- performance, energy-efficient servers, which the Portfolio does not own. The stock declined notably in the quarter, providing a tailwind to relative performance. On a YTD basis, however, Super Micro is still our largest relative detractor, given its robust 1Q return.”
6. 3M Company (NYSE:MMM)
Number of Hedge Fund Holders: 66
Morgan Stanley assigned an “underweight” or sell rating to Dow stock 3M Company (NYSE:MMM), setting a price target of $125 per share. The analysts expressed concerns about ongoing weakness in consumer spending, which they believe will make it challenging for 3M Company (NYSE:MMM) to meet its organic growth targets for 2025. Jim Cramer noted that Morgan Stanley’s downgrade reflects skepticism about 3M Company (NYSE:MMM)’s ability to achieve its long-term growth goals due to the current economic environment.
“Morgan Stanley put an underweight sell rating on Dow stock 3M with a $125-per-share price target. The analysts said they see continued consumer spending softness, setting up difficulty delivering on full-year 2025 organic growth forecasts.”
3M Company (NYSE:MMM) shows a strong investment case due to its solid recent performance and positive outlook for 2024. 3M Company (NYSE:MMM) reported a strong second-quarter performance, with adjusted EPS rising 39% year-over-year to $1.93. This led 3M to increase its full-year EPS guidance to $7.00 to $7.30 per share, reflecting confidence in its operational improvements. 3M Company (NYSE:MMM)’s operational efficiency is evident from its adjusted operating income margin, which improved to 21.6% from 17.2% a year ago, thanks to effective price management and cost control.
Even though overall sales declined by 0.5% due to weaker demand in some areas, 3M Company (NYSE:MMM) generated significant free cash flow of $1.2 billion and made strategic exits from high-risk businesses like PFAS manufacturing. Looking forward, 3M Company (NYSE:MMM)’s focus on innovation in health care and industrial solutions, along with its commitment to R&D and strategic acquisitions, positions it well for future growth.
5. Honeywell International Inc. (NYSE:HON)
Number of Hedge Fund Holders: 50
Honeywell International Inc. (NYSE:HON), another stock in Jim Cramer’s portfolio, received a “hold” rating with a $210 price target. Cramer mentioned that he doesn’t see much advantage with Honeywell International Inc. (NYSE:HON) at the moment, noting that it has already fallen from its previous highs.
“Fellow Club name Honeywell was also started with a hold and a $210 price target. I don’t see much edge here and it has dropped from its high.”
Honeywell International Inc. (NYSE:HON) is a strong investment pick for 2024 due to its solid financial performance, strategic acquisitions, and growth in key sectors. In Q2 2024, Honeywell International Inc. (NYSE:HON) reported an 8% year-over-year increase in adjusted EPS to $2.49, driven by strong organic sales growth in aerospace, defense, and building solutions, all of which saw double-digit gains. Honeywell International Inc. (NYSE:HON)’s large $32 billion order backlog supports a positive near-term outlook.
Honeywell International Inc. (NYSE:HON) is actively investing, having allocated around $15 billion to acquisitions and share repurchases, including a significant $5 billion purchase of Access Solutions. This acquisition strengthens Honeywell International Inc. (NYSE:HON)’s position in building automation and energy solutions. Aerospace continues to drive growth, benefiting from higher commercial and defense spending, while Honeywell’s focus on energy and sustainability positions it well for future expansion.
Honeywell International Inc. (NYSE:HON)’s alignment with major trends like energy efficiency and digital transformation, along with its ongoing innovation and strategic capital investments, further boosts its growth prospects. Despite some challenges in short-cycle businesses, Honeywell International Inc. (NYSE:HON)’s strong earnings, key sector growth, and strategic focus offer a solid foundation for a bullish outlook in 2024 and beyond.
4. Intel Corporation (NASDAQ:INTC)
Number of Hedge Fund Holders: 75
According to the Financial Times, Intel Corporation (NASDAQ:INTC) has been hit by major departures, including Stuart Pann, who was appointed head of the foundry business in 2023, and Shlomit Weiss, a key designer who left in April. Combined with the recent decline in stock prices, Jim Cramer noted that these challenges are making it harder for CEO Pat Gelsinger to execute his turnaround strategy at Intel Corporation (NASDAQ:INTC).
“The Financial Times reports that Intel has been rocked by key defections, including Stuart Pann who was named head of the foundry business in 2023. Shlomit Weiss, a key designer, departed in April. Coupled with stock price declines, the deck looks increasingly stacked against CEO Pat Gelsinger’s turnaround plans.”
Intel Corporation (NASDAQ:INTC) is a strong investment for 2024 due to its strategic transformation, strong market presence, and growth potential in key areas. Under CEO Pat Gelsinger, Intel Corporation (NASDAQ:INTC) has restructured by focusing on core semiconductor and foundry services, which has boosted investor confidence and solidified its leadership in U.S. chip manufacturing. Intel Corporation (NASDAQ:INTC) holds a significant market share in data centers and PCs and is making strides in the AI chip market, which NVIDIA Corporation (NASDAQ:NVDA) currently dominates.
Intel Corporation (NASDAQ:INTC)’s expansion in foundry services, supported by partnerships with Marvell Technology Group Ltd. (NASDAQ:MRVL) and NVIDIA Corporation (NASDAQ:NVDA) and the development of the Intel 18A process node, enhances its growth potential. Additionally, Intel Corporation (NASDAQ:INTC)’s $10 billion cost-reduction plan is expected to improve efficiency, competitiveness, and profitability.
Ariel Global Fund stated the following regarding Intel Corporation (NASDAQ:INTC) in its Q2 2024 investor letter:
“Alternatively, several positions weighed on performance. One of the world’s largest semiconductor chip manufacturers by revenue, Intel Corporation (NASDAQ:INTC), underperformed in the period on news of a longer than expected turnaround in profitability within the Foundry business. This was exacerbated by disappointing near-term guidance due to a weakening demand environment signaling an extended replacement cycle. We view the quarter as a temporary trough that should dissipate as we see signs of a cyclical recovery for personal computers (PCs) and central processing units (CPUs), driven by the Windows 11 upgrade.
In our view, the market is overlooking the progress Intel is making to advance its manufacturing process. Not to mention, the company’s efforts to serve as a viable second source foundry partner of leading-edge silicon. We believe the separation of the design and manufacturing businesses will be a key catalyst in unlocking improved financial performance while also enhancing the competitiveness of the foundry business.”
3. Eaton Corporation plc (NYSE:ETN)
Number of Hedge Fund Holders: 93
Morgan Stanley initiated coverage on Eaton Corporation plc (NYSE:ETN) with an “overweight” buy rating and set a price target of $370, while Wolfe Research upgraded the stock from a sell to a hold-equivalent. Jim Cramer believes Eaton Corporation plc (NYSE:ETN) is strongly positioned to benefit from major trends like the expansion of AI and data center infrastructure. He also mentioned that they are analyzing optimal buying points for Eaton Corporation plc (NYSE:ETN) and two other industrial stocks in his portfolio, similar to their recent analysis of four major tech companies.
“Morgan Stanley started Eaton with an overweight buy rating and a $370 price target. Wolfe Research upgraded the electrical components maker stock to a hold-equivalent from sell. I think this one is the most levered to megatrends such as AI data center buildouts. We look at key buy levels for Eaton and two other Club industrials. The exercise followed our look at what to pay for four tech megacaps.”
Eaton Corporation plc (NYSE:ETN) presents a strong investment opportunity due to its impressive performance and strategic focus on key trends like electrification, energy transition, and digitalization. In Q2 2024, Eaton Corporation plc (NYSE:ETN) achieved record earnings, with adjusted EPS rising 24% year-over-year and segment margins reaching 23.7%. Eaton Corporation plc (NYSE:ETN)’s success is fueled by increased demand for its electrical and aerospace solutions, setting the stage for continued growth.
Eaton Corporation plc (NYSE:ETN)’s large backlog and ongoing investments in expanding capacity are expected to boost its market share in important areas such as data centers and utilities. This blend of solid financial results, strategic investments, and favorable market conditions highlights Eaton Corporation plc (NYSE:ETN)’s potential for ongoing earnings growth, making it an attractive investment choice.
Ave Maria World Equity Fund stated the following regarding Eaton Corporation plc (NYSE:ETN) in its first quarter 2024 investor letter:
“Eaton Corporation plc (NYSE:ETN) is an intelligent power management company. The company is a long-term beneficiary in the trend towards electrification, energy transition and digitalization. Eaton is also benefiting from unprecedented global stimuli such as the Inflation Reduction Act, Infrastructure Investment and Jobs Act, the Chips and Science Act and the EU recovery plan known as the NextGenerationEU.”
2. Broadcom Inc. (NASDAQ:AVGO)
Number of Hedge Fund Holders: 130
Broadcom Inc. (NASDAQ:AVGO) reported quarterly results that exceeded expectations, but its guidance fell short, causing the stock to drop by 7%. Jim Cramer noted that compared to NVIDIA Corporation (NASDAQ:NVDA), Broadcom Inc. (NASDAQ:AVGO)’s performance was weaker, particularly in its artificial intelligence segment, which did not deliver standout results. However, the rest of the business appears to be stabilizing. Cramer advised reading the Club’s earnings bulletin before making any decisions about Broadcom Inc. (NASDAQ:AVGO).
“Broadcom and the weaknesses: The reported quarterly numbers beat estimates but guidance disappointed. The stock fell 7%. Read our earnings bulletin before you decide what to do with the stock. The Club chipmaker was worse than Nvidia. Artificial intelligence was not blowout. The rest of the business shows signs of bottoming.
Broadcom Inc. (NASDAQ:AVGO) is a strong investment option due to its impressive financial performance, strategic role in the AI market, and the transformative effect of its VMware acquisition. Recent earnings reports show a notable increase in AI-related chip sales, which are expected to top $11 billion for fiscal 2024. This growth highlights Broadcom Inc. (NASDAQ:AVGO)’s leadership in the sector and its ability to leverage new technology trends.
Broadcom Inc. (NASDAQ:AVGO) has also shown operational excellence with margins exceeding expectations, demonstrating its efficiency. The $61 billion acquisition of VMware is expected to enhance Broadcom Inc. (NASDAQ:AVGO)’s software capabilities and diversify its revenue, making the business model more robust. Despite a slight decrease in Q3 2024 guidance, analysts are still optimistic about Broadcom Inc. (NASDAQ:AVGO)’s long-term potential.
Mar Vista Focus strategy stated the following regarding Broadcom Inc. (NASDAQ:AVGO) in its Q2 2024 investor letter:
“During the quarter, we established new investments in Broadcom Inc. (NASDAQ:AVGO) and Meta Platforms. We initiated a position in Broadcom in Q2. As a skilled aggregator, Broadcom acquires firms, streamlines their operations, and invests R&D dollars in mission critical products that generate industry leading profit margins, robust cash flows and high returns on invested capital. Its primary markets include AI accelerators targeting generative AI applications, networking & wireless semiconductors, and mission-critical infrastructure software solutions.
Broadcom is well-positioned to benefit from the rapidly expanding demand for custom AI accelerator chips that support the evolution of the generative AI market. The company is the second-largest producer of AI accelerator chips behind Nvidia and leads the market in custom AI ASIC chips. Its customers include leading hyper scalers like Alphabet and Meta who are turning to Broadcom for custom silicon due to its performance and cost advantages. We believe the company is a direct beneficiary of a multi-year capital cycle driven by hyper scalers building out next-generation AI factories.
Broadcom recently acquired VMware, the leader in virtualization software targeting the enterprise market. The integration of VMware is tracking ahead of plan as management has simplified its product bundles, transitioned to a subscription revenue model, and reduced operating costs. We believe this simplified go-to-market structure will result in strong top-line revenue growth and expanding operating margins. We believe Broadcom will compound intrinsic value per share in the mid-20% range over the intermediate term as it benefits from the AI-infrastructure build-out, a cyclical recovery in its legacy semiconductor business, and modestly accelerating growth from its infrastructure software business as VMware is successfully integrated.”
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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