5 Best Cloud Computing Stocks Heading into 2023

3. Alphabet Inc. (NASDAQ:GOOG)

Number of Hedge Fund Holders: 156

Alphabet Inc.’s (NASDAQ:GOOG) cloud business is a rapidly growing business that is becoming increasingly important to the company’s overall strategy. The company’s cloud services are offered through Google Cloud Platform (GCP) and its suite of cloud-based products and services. GCP enables customers to build, deploy, and manage applications, websites, and other services on Google’s highly scalable and secure cloud platform.

On November 15, Morgan Stanley analyst Brian Nowak updated his price target on Alphabet Inc. (NASDAQ:GOOG) to $120 from $125 and reiterated an Overweight rating on the shares.

At the end of Q3 2022, 156 hedge funds were long Alphabet Inc. (NASDAQ:GOOG) and held collective stakes of $19.3 billion in the company. Of those, TCI Fund Management was the most prominent shareholder in the company and disclosed a position worth $5.04 billion.

Here is what Mayar Capital had to say about Alphabet Inc. (NASDAQ:GOOG) in its third-quarter 2022 investor letter:

“In early January this year – which admittedly feels like eons ago – US President Joe Biden was pushing Americans to take up the government’s offer of free COVID tests to help tackle the surging omicron variant. How did Biden respond when citizens asked about the availability of these tests?

“Google it!”

This advice, undoubtedly well-meant, was roundly scoffed at by the press, however. It seemed too obvious to be very helpful.

Anyway, the anecdote serves to introduce you to one of our largest holdings, Alphabet; the parent company of Google. Note that first, Alphabet’s original and core product – its search engine – has entered our common vocabulary as a verb. ‘Googling’ something has the same meaning as ‘researching’ or ‘finding an answer to’ something. Second the reason Biden’s advice was met with such opprobrium was because Googling something has become almost second nature to us now.

These two observations reveal a lot about Google’s strength in the search engine market, in which it has a share of over 90 percent. Because internet search is almost the prototypical network, Google has benefitted from – and we think is also protected by – the huge competitive advantage its scale brings – both to those asking the questions and those providing the answers. The Google search platform becomes increasingly useful to anyone seeking information as a greater volume of stuff becomes available. This starts a virtuous cycle that results in a colossal market share for Google itself. In the language of business strategists, Google benefits from vast network effects.

Because Google’s search results are viewed by billions of eyeballs every day, its search page ‘real estate’ is understandably very valuable to those with goods and services to sell. Advertising revenues from this ‘real estate’ as well as that from its other properties such as Mail, Maps, and so on, totaled almost USD 150b in 2021; amounting to almost 58% of the company’s revenues. Ad sales on YouTube, also owned by Alphabet, brought in another USD 28b. With the secular shift of the advertising spend to digital channels – over which Alphabet has a tight grip – we estimate the company has a share of around 40% of the digital advertising market and is probably the most valuable advertising property in the world…” (Click here to see the full text)