We recently published a list of 8 Best Machine Learning Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Alphabet Inc. (NASDAQ:GOOGL) stands against other best machine learning stocks to buy according to hedge funds.
Earlier this month, the president of Potomac Wealth Advisors, Mark Avallone, discussed the tech sector’s investment potential. We talked about his sentiment in more detail in one of our other articles, 12 Best NASDAQ Stocks To Buy in 2025. Here’s an excerpt from it:
“He noted that market rates have surged to all-time highs, with a significant increase of 1,800 points since October 2023. Avallone emphasizes that tech stocks, particularly cash-flowing mega-cap and large-cap companies, have shown resilience against rising rates, attributing this to improved operational efficiencies and ongoing technology spending even in a slowing economy.”
Just like Avallone, several analysts hold a positive outlook for tech stocks as we go into 2025. Daniel Ives, Global Head of Technology Research at Wedbush Securities, thinks that the AI revolution is driving this strength in tech. On January 13, he appeared on CNBC and discussed the tech sector in light of rising interest rates and a strengthening dollar. He noted that the 10-year Treasury yield is currently at 4.75%, which is exerting pressure on tech stocks. Despite this, Ives expressed optimism about the sector’s potential for growth and suggested that the current environment presents opportunities to invest in leading companies. He emphasized that capital expenditures are robust on the consumer side and indicate stronger-than-expected earnings ahead. Ives believes that we are only halfway through the bull market, which he views as a positive sign for tech stocks moving forward.
Ives discussed Palantir Technologies, which has faced selling pressure despite being a top S&P 500 performer last year. He warned that overlooking it due to high valuation could mean missing key market opportunities, similar to Oracle and Salesforce, especially with $2 trillion in expected AI capital expenditures. Ives also highlighted the impact of a rising dollar on tech, particularly Apple’s vulnerability, while remaining bullish on the sector. He emphasized the need for diversification, citing Microsoft and NVIDIA as indicators for AI growth.
His optimism about the tech sector highlights opportunities as investors navigate this landscape.
Methodology
We first sifted through ETFs, online rankings, and internet lists to compile a list of the top ML stocks. We then selected the 8 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q3 2024. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 900 elite money managers.
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).
A user’s hands typing a search query into a Google Search box, emphasizing the company’s search capabilities.
Alphabet Inc. (NASDAQ:GOOGL)
Number of Hedge Fund Holders: 202
Alphabet Inc. (NASDAQ:GOOGL) is a technology conglomerate and the parent company of Google. Its core businesses include search, advertising, cloud computing, and a diverse portfolio of “Other Bets,” such as self-driving cars and life sciences. It’s known for its innovative culture and focus on AI.
Stifel recently raised its target to $225, predicting a 17% upside, due to the company’s dominance in search, online video, and strong AI potential. Wells Fargo, while acknowledging its AI advancements, maintained an Equal-Weight rating with a $190 price target. This indicates a slight downside. Wells Fargo expressed concerns about the potential impact of AI on Google Search and predicted a decline in search revenue as AI agents become more prevalent. Alphabet Inc. (NASDAQ:GOOGL) shares also declined 1.3% on Monday, following a broader market downturn in the tech sector.
However, the company’s Gemini AI model is deeply integrated into Google Search, which enhances user experience and expands search capabilities. Features like AI Overviews and Circle to Search allow users to ask more complex questions and interact with search in new ways. This increased user engagement drives more search queries, benefiting both users and advertisers. In Q3 2024, Google Services revenue increased 13%, driven by strong performance in Google Search and other advertising revenue, which grew 12%.
Here’s what Qualivian Investment Partners said regarding Alphabet Inc. (NASDAQ:GOOGL) in its Q3 2024 investor letter, highlighting the company’s strong second-quarter results:
“Alphabet Inc. (NASDAQ:GOOGL): Q2 2024 revenues and EPS beat expectations, with total revenues growing 14%, Search ad revenues growing 14%, YouTube ads growing 13%, and Google Cloud revenues growing 29%. Revenue growth in the quarter constituted a continued sequential improvement from earlier quarters in the year, suggesting a continued rebound in Alphabet’s core business except for YouTube ad revenues, which missed expectations and showed deceleration in the growth rate as compared to Q1 when it grew 21%. Operating margins improved by 310 bps vs. the same quarter last year.
Management continued to highlight developments with their generative AI program, which is seen as a foundational platform with opportunities across their businesses but particularly in search and cloud. However, this comes with material capex investment well ahead of the expected economic benefits from Gen AI, and the level of spending is leading investors to worry about the ROI on that spend for Alphabet, as well as the other hyperscalers (Microsoft and Amazon). We continue to have confidence in Alphabet’s ability to generate strong revenue, earnings, and cash flow growth well above the S&P 500’s in the years to come and view it as a core holding for the long term.”
Overall, GOOGL ranks 4th on our list of best machine learning stocks to buy according to hedge funds. While we acknowledge the growth potential of GOOGL, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter time frame. 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.
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