We recently compiled a list of the 10 Best Stocks to Invest in According to Billionaire Cliff Asness. In this article, we are going to take a look at where Alphabet Inc. (NASDAQ:GOOGL) stands against the other stocks recommended by Cliff Asness.
The founder, managing principal, and chief investment officer of AQR Capital Management, Cliff Asness is a well-known name in the financial industry. Setting off with a $10 million commitment from a small group of investors in 1995, Asness managed to grow the Goldman Sachs Global Alpha Fund’s assets to over a $100 million in a matter of months. Distinct even among hedge fund managers, Cliff Asness’ investment strategies, focusing on value and momentum strategies, have produced impressive outcomes for AQR Capital over the years. As an example, AQR’s flagship Absolute Return fund had a spectacular year in 2022 after declining by over 30% from its peak in 2018. It rose 43.5%, the best performance since launch in 1998. The fund saw a 16.8% increase in 2021, and 18.4% in 2023, making it the best performing multi-strategy fund among its competitors. In its latest 13F filing for Q3 2024, AQR Capital Management disclosed a portfolio value $72.4 billion in 13F securities, with a top 10 holdings concentration of 14.07%.
In his interview for the book Efficiently Inefficient, Cliff Asness talks about the similarities between judgmental (discretionary) and quantitative investing, stating that both strategies look for cheap stocks with potential catalysts to raise or lower their values. He emphasized how quants use diversification and apply models across thousands of stocks to lower the risk factor, whereas judgmental investors tend to concentrate their holdings, thus relying on in-depth company knowledge. That said, Asness admitted that quant investors do go through periods of underperformance, even with the advantages of thorough data analysis.
Bitcoin: Little More Than a Speculative Bubble
Asness has had much to say about Bitcoin over the years. According to the billionaire, the cryptocurrency remains in a speculative bubble after the post-election rally carried it over the $100,000 mark. Speaking on the cryptocurrency on CNBC’s Money Movers, Asness stated the following:
“I’m on the bubble side, on net. To move me off that, you really need not a price change, but a use case. That’s what could convince me to become maybe more of a crypto person when I find any use for it, aside from speculation and criminality.”
Following a massive year-end surge following president-elect Donald Trump’s victory, Bitcoin surged 120% in 2024. With hopes of a national strategic Bitcoin reserve and pro-industry deregulation, investors expected Trump to bring about a golden age of crypto. Although Asness doesn’t harbor good prospects for Bitcoin, he stated that he wouldn’t short the cryptocurrency either, due to the volatile nature of crypto.
Despite proponents of Bitcoin contending that the cryptocurrency is here to stay and will eventually gain widespread acceptance, Asness’ criticisms highlight the absence of real-world applications outside speculative investing. He still views Bitcoin cautiously because he thinks its legitimacy as a store of value and a medium of exchange has not been established. Along with his comments regarding Bitcoin, Asness also expressed his worries about the larger U.S. stock market, stating that high cyclically-adjusted price-to-earnings (CAPE) ratios will cause equities to struggle in the upcoming years. He predicts that during the following ten years, U.S. stocks will probably provide mediocre returns, with just slight outperformance over cash.
Our Methodology
To make our list of the ten best stocks to invest in according to Cliff Asness, we ranked all the stocks part of AQR Capital Managment’s Q3 2024 13F SEC filings and picked the fund’s top 10 stock holdings. The stocks are sorted in ascending order of AQR Capital Management’s stake value.
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)
AQR Capital Management’s stake as of Q3: $582.5 million
Alphabet Inc. (NASDAQ:GOOGL) is a prominent name in technology. Through its various offerings, such as Google Cloud and Google Services, the company leads several market divisions. Its primary products—such as Search, YouTube, Android, Chrome, and advertising services—dominate their respective markets, driven by advanced innovations in artificial intelligence.
In light of possible antitrust sanctions that might affect Google’s search distribution and earnings in the United States, JMP Securities lowered the GOOGL stock from Market Outperform to Market Perform on January 2. There have been some concerns around the stock’s ability for multiple expansion due to uncertainty around a court decision that is expected to come in August.
Yet September 2024 earnings for Alphabet Inc. (NASDAQ:GOOGL) showed record revenue, reaching $88.3 billion during the quarter. Google Advertising generated $65.9 billion, making up more than 74% of the company’s total revenue. In order to meet investor expectations for returns on its substantial AI investments, the company is improving its monetization strategies with tools such AI Overviews.
Qualivian Investment Partners stated the following regarding Alphabet Inc. (NASDAQ:GOOGL) in its Q3 2024 investor letter:
“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 8th on our list of the stocks recommended by billionaire Cliff Asness. While we acknowledge the potential of GOOGL as an investment, our conviction lies in the belief that certain 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.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.
Disclosure: None. This article is originally published at Insider Monkey.