Potential Headwinds Dragged Alphabet (GOOG) in Q1

Madison Investments, an investment advisor, released its “Madison Sustainable Equity Strategy” first quarter 2025 investor letter. A copy of the letter can be downloaded here.  In the first quarter, the S&P 500 had a total return of -4.3%, with a significant -5.6% drop in March. This decline was mainly due to the impact of tariffs, which hurt business and consumer confidence. Expectations for strong economic growth and deregulation have decreased as the new administration’s trade priorities have become clearer. The strategy returned -3.32% (Gross) in the quarter compared to -4.27% for the index. Both sector allocation and security selection were positive during the quarter. In addition, you can check the fund’s top 5 holdings to find out its best picks for 2025.

In its first-quarter 2025 investor letter, Madison Sustainable Equity Strategy highlighted stocks such as Alphabet Inc. (NASDAQ:GOOG). Alphabet Inc. (NASDAQ:GOOG), the parent company of Google, offers various platforms and services operating through Google Services, Google Cloud, and Other Bets segments. The one-month return of Alphabet Inc. (NASDAQ:GOOG) was 8.10%, and its shares gained 1.16% of their value over the last 52 weeks. On June 10, 2025, Alphabet Inc. (NASDAQ:GOOG) stock closed at $178.79 per share, with a market capitalization of $2.16 trillion.

Madison Sustainable Equity Strategy stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q1 2025 investor letter:

“Alphabet Inc. (NASDAQ:GOOG) reported a strong overall fourth quarter with Google Search advertising revenue growth of 13% to $54 billion. You Tube advertising revenue grew 14% to $10.4 billion, and Google Cloud reported revenue of $12 billion (+30%). Profitability improved as well with GAAP EBIT growth of 31% to $31 billion. Management called out some headwinds to consider for 2025. The strong performance in certain Search verticals in 2024, like Financial Services, will make tougher comparisons this year, potentially impacting revenue growth. The company also guided to $75 billion in capital expenditures in 2025, up from $52 billion in 2024. This higher level of capex will drive accelerated growth in depreciation expense impacting profitability. Management also guided to headcount growth in key areas like AI and Cloud which will increase operating expenses. Investors reacted negatively to these potential headwinds.”

Alphabet Inc. (GOOG)’s AI Ad Strategy Expands Reach—But Analyst Keeps Neutral Stance

A user’s hands typing a search query into a Google Search box, emphasizing the company’s search capabilities.

Alphabet Inc. (NASDAQ:GOOG) is in 7th position on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 164 hedge fund portfolios held Alphabet Inc. (NASDAQ:GOOG) at the end of the first quarter which was 174 in the previous quarter. In the first quarter of 2025, Alphabet Inc. (NASDAQ: GOOG) achieved a revenue of $90.2 billion, representing an increase of 12% from Q1 2024. While we acknowledge the potential of Alphabet Inc. (NASDAQ:GOOG) 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 as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the undervalued AI stock set for massive gains.

In another article, we covered Alphabet Inc. (NASDAQ:GOOG) and shared Columbia Threadneedle Global Technology Growth Strategy’s views on the company. In its Q1 2025 letter, the Artisan Select Equity Fund noted that the valuation of Alphabet Inc. (NASDAQ: GOOG) is more attractive now compared to that of 2024. In addition, please check out our hedge fund investor letters Q1 2025 page for more investor letters from hedge funds and other leading investors.

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