Were Hedge Funds Right Betting On These Tech Stocks in Q4?

#2 Alphabet Inc. (NASDAQ:GOOGL)

Hedge Funds with Long Positions (as of September 30): 129

Fourth-quarter Return (Class A shares): 21.87%

Alphabet Inc. (NASDAQ:GOOGL) has received more attention from the hedge funds monitored by our team, as the number of smart money investors owning the tech giant’s Class A shares grew to 129 from 115 during the third quarter. Alphabet’s Class A stock gained nearly 22% in the fourth quarter, while its Class C shares advanced by almost 25% during the same period.

The company’s core advertising business has achieved double-digit growth over the past several quarters and may keep doing so in the upcoming future, thanks to the strong growth in mobile search. Its Google websites revenue for the nine months that ended September 30 totaled $37.42 billion, up from $32.66 billion reported for the same period of the prior year. However, it remains to see whether Alphabet’s search segment is set to slide toward single-digit growth or continue growing at double-digit rates.

Andreas Halvorsen’s Viking Global represents a prominent investor in Alphabet Inc. (NASDAQ:GOOGL), holding 2.53 million Class A shares and 1.12 million Class C shares as of September 30. In his third-quarter investor letter, Halvorsen said:

“Among long positions, Alphabet was the biggest winner, contributing 1.2% to both funds. Our core thesis revolves around the company’s transition from desktop to mobile. In our opinion, prevailing concerns around this transition are misguided and mobile represents a tremendous revenue opportunity.”

The investor also believes that Alphabet will be capable to achieve significant revenue growth as the advertising is shifting towards search and YouTube from more traditional media. The company’s reorganization will allow the company to focus on operating efficiencies and “streamlining capital allocation.”

“We find the current valuation compelling, especially in light of the company’s growing net cash position, and the likelihood that strong revenue growth combined with improved cost control will result in a higher price-to-earnings multiple,” Halvorsen concluded.