4. Alphabet Inc Class C (NASDAQ:GOOG)
Number of Hedge Fund Investors: 160
Commenting on Alphabet’s latest quarterly results, Tim Seymour, the founder and Chief Investment Officer of Seymour Asset Management, said that he’s worried about the company’s Cloud business which he called the “bread and butter” of the search engine giant.
“I think this was all about Cloud. I think this is weak, this is bread and butter. Because, you know, I think about adtech, I think where they are in digital ad, and I think they’re dominant, and I think they’re going to continue to grow, take market share, and improve margin. So I guess I’m less worried about that than I am the bread and butter, and it gets down to some commoditization and a very, very crowded Cloud space.
I do like the operating margin at 32%. I think overall margins for this company are getting better—that’s good news. And I think everyone just hit it. I mean, the stock moved 40 points, or about 35%, from Thanksgiving into the print. It was priced to perfection, even though it wasn’t expensive. I mean, what’s interesting about Google, and this might be a negative, is that in the run we’ve had with mega-cap tech stocks, this stock is absolutely in line with its 10-year PE.”
Alphabet shares slipped following the company’s latest quarterly results. The market was spooked by the massive $75 billion Capex guidance 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 Gemini instead of moving to a completely new app like ChatGPT or Perplexity. So far AI competition hasn’t dented the company’s search revenue.
Merion Road Capital Management stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q4 2024 investor letter:
“Alphabet Inc. (NASDAQ:GOOG): We have held GOOG for a long time (since 2018) on the basis of its immense business quality paired with an undemanding valuation, improving treatment of minority shareholders, and multiple options for value creation. Recently we have seen Alphabet bashed for losing the AI race to now heralded for its progress. I remain excited about their prospects with several near-term, mid-term, and long-term tailwinds. Near-term, Google Cloud continues its rapid growth and their latest large language model, Gemini 2.0, appears to have made significant progress to better serve consumer needs and improve GOOG’s other product offerings. Mid-term, Waymo is on the cusp of becoming a real value driver for the company; there are abundant articles discussing Waymo stealing share from the ride-share economy and launching in new geographies. Long-term, GOOG’s recently announced quantum computing chip positions it well for a future (many, many years away) where computing process are fundamentally different than today. All of these options are embedded in a company that already has an established and dominant earnings stream.”
