We recently compiled a list of the 8 Most Profitable Blue Chip Stocks to Invest In. In this article, we are going to take a look at where Alphabet Inc. (NASDAQ:GOOGL) stands against the other profitable blue chip stocks.

The September inflation report came in hotter than expected and showed that it remains sticky. Headline inflation rose by 2.4%, slightly above the anticipated 2.3%, and down from 2.5% in August. Month-over-month, CPI increased by 0.2%, exceeding the forecast of 0.1%.

Core inflation, excluding food and energy, also came in higher than expected at 3.3%, compared to the anticipated 3.2%, marking a slight increase from August. On a monthly basis, core CPI rose by 0.3%, which matched August’s figures but was above expectations of 0.2%.

Following the report, the market is expecting a 25 basis points rate cut to no rate cuts in the upcoming Fed meeting. According to the CME FedWatch tool, 79.9% of interest rate traders expect the rate cuts to be at 450-475 bps at the coming Fed meeting while 20.1% expect the rate cut to stay the same. At the beginning of the month, 32.1% expected a 50 bps rate cut, while 67.9% anticipated a 25 bps cut.

Understanding Inflation Trends and Federal Reserve Strategy

Despite the sticky inflation, IBM’s vice chair, Gary Cohn believes that the Fed will cut rates by 100 bps this year. In an interview at CNBC’s ‘Money Movers’, he suggested that the U.S. is experiencing what a soft landing looks like, with inflation decreasing but not steadily. He indicated that reaching the Fed’s 2% target will be challenging, as inflation rates are likely to fluctuate around this level.

Cohn noted that for the first time in nearly two decades, the Fed is balancing both sides of its dual mandate, employment, and price stability, after focusing primarily on one at a time. He believes the Fed is making the right decisions and is currently in a delicate position as it missed meeting opportunities this year.

Cohn expects that the Fed will implement a total of 100 basis points in rate cuts this year, likely consisting of 25 basis point reductions over the next couple of months. When asked about inflation targets, he expressed a preference for slightly exceeding the target inflation rate, suggesting that a rate of around 2.2% would be more acceptable in a growing economy than undershooting the target.

Cohn also highlighted concerns about geopolitical risks and said that global tensions could lead to inflationary pressures by disrupting supply chains and increasing shipping costs.

Our Methodology

For this article, we use stock screeners to identify nearly 30 stocks above $100 billion market cap and $10 billion TTM net income. Next, we narrowed our list to 8 stocks that had a 5-year net income compound annual growth rate of above 10% and were most widely held by institutional investors. The most profitable blue chip stocks are listed in ascending order of the hedge fund sentiment, which was taken from Insider Monkey’s Q2 database of 912 hedge funds.

Why are we interested in 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).

Alphabet Inc. (NASDAQ:GOOGL)

Market Cap: $2 Trillion

5-Year Net Income CAGR: 20.33%

TTM Net Income: $87.657 billion

Number of Hedge Fund Holders: 216

One of the most profitable blue chip stocks, Alphabet Inc. (NASDAQ:GOOGL) is another contender for the most profitable blue chip stocks and is another company on our list that is a part of the tech Big Five. The company’s infrastructure includes a diverse range of subsidiaries, with Google remaining its largest and most well-known entity, which oversees services like Android, YouTube, and Google Search.

Other subsidiaries focus on multiple sectors, including health, venture capital, and autonomous driving. The company’s mission is to organize global information and make it accessible, with Google Search, YouTube, Google Assistant, and Google Cloud as key tools for users and businesses.

AI is also a big part of the company and has been integrated into its products for over a decade and powers features like Google Translate and Google Photos. Its latest AI model, Gemini, introduced in 2023, further advances its capabilities across several data types.

Alphabet (NASDAQ:GOOGL) is experiencing a pebble in its shoe as it is facing intensified antitrust scrutiny in the U.S. The Justice Department is considering forcing it to spin off certain services to address monopolistic practices in online searches.

However, Mizuho Securities analyst James Lee has still reaffirmed a Buy rating on the company’s stock due to its strong fundamentals and a positive outlook despite regulatory hurdles.

TipRanks reported that Lee’s analysis considers the Department of Justice’s proposed changes to Google’s search operations, which include banning certain exclusive agreements and mandating the sharing of search and AI-related data. He believes these adjustments may have some structural implications but will not significantly weaken Google’s market position.

He believes that Alphabet (NASDAQ:GOOGL) can effectively manage these regulatory challenges. Additionally, the proposed remedies regarding search result displays and advertising are expected to have minimal effects on the company’s overall operations.

Patient Capital Management stated the following regarding Alphabet Inc. (NASDAQ:GOOGL) in its Q2 2024 investor letter:

“Alphabet Inc. (NASDAQ:GOOGL) was a top contributor in the second quarter, finally catching up to its peers in the Magnificent 7. The company gained 20.8% in the period following strong first quarter earnings, a new $70B repurchase program (3% of shares outstanding) and the initiation of a cash dividend ($0.20 per share; 0.42% yield). We continue to believe the market underappreciates Google’s exposure to AI with its Gemini model being integrated into search results, YouTube advertising and its cloud offering. We continue to think that the cloud players will be the AI winners in the long-term, with Google being well positioned to take advantage. While the company trades at 24x 2024 earnings, if you remove the money-losing and under-earning businesses, you realize that you are paying below a market multiple for the core Google business. We do not believe there are many other AI winners trading at such an attractive multiple.”

Overall GOOGL ranks 4th on our list of the most profitable blue chip stocks to invest in. While we acknowledge the potential of GOOGL as an investment, our conviction lies in the belief that 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 GOOGL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.