2. Alphabet Inc. (NASDAQ:GOOG)
Number of Hedge Fund Investors: 165
Morgan Stanley suggests that Alphabet Inc. (NASDAQ:GOOG) shares might be stuck in a trading range due to uncertainty surrounding the antitrust case that recently went against Google’s parent company. As a result, the analysts have reduced their price target for Alphabet Inc. (NASDAQ:GOOG) from $205 to $190 per share but still maintain a buy-equivalent rating. Jim Cramer notes that despite these challenges, Alphabet Inc. (NASDAQ:GOOG) remains a stock held by the CNBC Investing Club.
“Alphabet shares may be rangebound due to uncertainty around remedies in the antitrust case that went against Google’s parent company last month, according to Morgan Stanley. The analysts lowered their price target on the stock to $190 a share from $205 as a result, but kept their buy-equivalent rating. We own Alphabet for the CNBC Investing Club.”
Alphabet Inc. (NASDAQ:GOOG) has demonstrated a strong financial performance in its latest earnings report. Revenue reached $84.7 billion, marking a 14% increase from the previous year, driven primarily by notable successes in its Search and Cloud segments. Alphabet Inc. (NASDAQ:GOOG)’s operating income soared to $27.4 billion, and net income rose to $23.6 billion, highlighting substantial improvements. The Search business, which generated $73.9 billion in revenue, was particularly strong. YouTube advertising also showed growth, with a 13% increase to $8.66 billion.
The Cloud segment excelled, achieving a 28.8% revenue increase to $10.35 billion and surpassing $1 billion in quarterly operating profit for the first time. Alphabet Inc. (NASDAQ:GOOG)’s ongoing investment in artificial intelligence (AI) is expected to boost its growth further. Alphabet Inc. (NASDAQ:GOOG)’s focus on integrating AI into its Search and Cloud services positions it well for future success as AI adoption expands. Despite some challenges in the Network ads segment, Alphabet Inc. (NASDAQ:GOOG)’s robust performance in Search, Cloud, and AI suggests continued 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.”
