Analyst Believes Alphabet (NASDAQ:GOOG) Search ‘Deep Moat’ Still Intact
We recently published a list of 10 Trending AI Stocks in October. Since Alphabet Inc Class C (NASDAQ:GOOG) ranks 5th on the list, it deserves a deeper look.
Tom Lee, Fundstrat co-founder, while talking to CNBC in a latest program, explained his bullish case for the market and why he believes the S&P 500 is headed to close the year “well beyond” 5,700.
“Bull markets are supported by a strong fundamentals and this is a case where not only has the economy survivie extremely high interest rates but the Fed is beginning to cut rates, and an economy that has been sort of languishing has been China. Now we have stimulus and what looks like some bazooka policies that are supporting that region, and we have a lot of cash on the sidelines. I think this is a formula for stocks to do pretty well the next three to 12 months, and that’s why we think that we would be well beyond 5700 before year-end.”
Lee said that he’s inclined to buy “risks outright” as he believes more upward momentum would come for stocks after the election.
“Small caps still have good fundamentals, earnings growth is accelerating, the media P/E is eleven times which is almost seven turns lower than the S&P so I think there is still case to be made that small-cap are starting a multi-year gain.”
For this article we picked 10 AI stocks that are making big moves on the back of latest news. With each company we have mentioned the number of hedge fund investors. 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).
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Alphabet Inc (NASDAQ:GOOG)
Number of Hedge Fund Investors: 165
Pivotal Research initiated coverage on Alphabet Inc (NASDAQ:GOOG) with a “buy” rating on Tuesday, citing the company’s strong competitive position and deep moat around its core search business. Despite ongoing antitrust trials, the firm believes the potential negative outcomes are already reflected in Google’s stock price. Pivotal’s forecast for Google is conservative on search but anticipates significant growth in cloud revenue and sees untapped value in its moonshot ventures. The firm set a price target of $215, suggesting a 30% upside for Alphabet Inc (NASDAQ:GOOG) shares.
Despite constant alarms going off about its search business, Alphabet Inc Class C (NASDAQ:GOOG) search revenue jumped about 13.7% in the second quarter year over year. As of the end of June, Google has about 91.06% share of the search engine market, just 1.65% lower than the December 2019 levels. With AI overviews and other search initiatives, Alphabet Inc Class C (NASDAQ:GOOG) will be able to stave off any competitors given its dominance in the market. According to StatCounter report, Bing search engine’s market share only increased from 3.03% in August 2023 to 3.91% in August 2024. This shows MSFT has not been able to make any notable dent in Google’s market share.
Cloud and YouTube are two key strong catalysts for Alphabet Inc Class C (NASDAQ:GOOG) shares. During the second quarter, Alphabet’s Cloud revenue rose 28.8% to $10.35 billion, crushing past analysts’ forecasts of $10.16 billion. Alphabet Inc Class C (NASDAQ:GOOG) is on the path to reach a $100 billion revenue run-rate from YouTube Ads and Google Cloud by the end of 2024.
Diamond Hill Large Cap Strategy stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q2 2024 investor letter:
“Among our top individual contributors in Q2 were Amazon, Texas Instruments and Alphabet Inc. (NASDAQ:GOOG). Media and technology company Alphabet also continued delivering strong results in its search, YouTube advertising, YouTube subscription and cloud businesses. Shares rose amid an environment that continues favoring mega-cap technology companies.”
Overall, Alphabet Inc (NASDAQ:GOOG) ranks 5th on Insider Monkey’s list titled 10 Trending AI Stocks in October. While we acknowledge the potential of Alphabet Inc (NASDAQ:GOOG) , 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 GOOG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These Stocks.
Disclosure: None. This article is originally published at Insider Monkey.