We recently compiled a list of the 10 Most Widely Held Stocks by Hedge Funds. In this article, we are going to take a look at where Alphabet Inc. (NASDAQ:GOOGL) stands against the other widely held stocks.
Two 25 Point Cuts May be the Most Likely Outcome
The last trading day of September is upon us and so are many questions about the market. On September 30, Dana D’Auria, Envestnet Solutions co-CIO and group president, appeared in an interview on Yahoo Finance to discuss the financial market.
D’Auria regards employment data to be a major concern at the moment. Since inflation rates are subsiding, employment data is something investors should be on the lookout for, along with other data points including GDP and consumer confidence. She suggests that to ensure a soft landing, the Fed must initiate larger rate cuts, and that recessionary conditions are out of the picture.
September is notoriously volatile along with October, and, with elections in another 35 days, the conditions may be slightly different or even more turbulent. According to D’Auria, the 50 basis point cut is a catch-up for July, and expecting a 50 basis point cut in November is borderline questionable.
Overall, she believes that the market has been overshooting and we may have to settle for two 25 basis point cuts before the end of 2024. She reiterates that the job market is crucial and investors must get out of their comfort zone to invest in non-cash opportunities. Investors concerned about low-risk options may consider equities in the defensive sectors that are innately low volatile.
The Market is Broadening
Wall Street is heading to close September and Q3 on a high note and stocks have experienced their best September in over a decade. On September 30, Kevin Gordon, harles Schwab’s Director and Senior Investment Strategist, appeared in an interview on Yahoo Finance to discuss his market thesis.
Gordon believes that stocks in the utilities and defensive sectors have caught up to tech stocks amid the AI boom, compared to their financials at the end of FY 2023. However, he does acknowledge that sectors like industrials, financials, and materials are performing relatively well, calling it a case of market broadening.
In terms of market breadth, most sectors are experiencing an upward trajectory. Almost 81% of the S&P 500 members are experiencing an uptrend, despite the quality bias investors may have towards certain stocks. According to Gordon, large-cap quality stocks will continue to perform well despite the volatility and the Fed’s decisions. Speaking of smaller-cap stocks, he believes that some stocks may struggle a bit especially when it comes to earnings growth.
Our Methodology
To come up with the 10 most widely held stocks by hedge funds, we sifted through Insider Monkey’s database that tracks over 900 hedge funds, as of Q2 2024. We ranked the top 10 stocks that were the most widely held by hedge funds in ascending order of their hedge fund sentiment.
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:GOOGL)
Number of Hedge Fund Holders: 216
Alphabet Inc. (NASDAQ:GOOGL) is one of the most widely held stocks by hedge funds. The company owns a range of products, including Google Search, Google Maps, YouTube, Google Cloud, and Waymo.
The company is relentlessly working to improve the Gemini experience and is also actively involved in developing AI hardware, having launched its NVIDIA chip rival in May. While Google’s tensor processing units (TPU) only account for almost 20% of the market, its advancements promise higher market shares. In addition to that, its six-generation chips are 67% more energy efficient compared to the previous generation of processors. It is to be noted that the company intends to spend $50 billion by the end of 2024 to enhance its position in AI.
Alphabet Inc. (NASDAQ:GOOGL) logged revenue worth $85 billion in the fiscal second quarter of 2024, driven by the growing momentum in cloud and search. Additionally, over 60% of generative AI startups and 90% of generative AI unicorns are customers of the Google Cloud. One can infer that the technology giant is well-positioned to exploit the next wave of artificial intelligence and innovation, making it a solid investment.
Analysts are bullish on GOOGL and their 12-month median price target of $204.5 points to a 24% upside from current levels. Overall, 216 investors held stakes worth $35.31 billion in Alphabet Inc. (NASDAQ:GOOGL). According to the Insider Monkey database, Fisher Asset Management was the highest stakeholder with a position of $8.86 billion.
Patient Capital Management mentioned Alphabet Inc. (NASDAQ:GOOG) in its Q2 2024 investor letter:
“Alphabet Inc. (GOOGL) was a top contributor in the second quarter, finally catching up to its peers in the Magnificent 7. The company gained 20.8% in the period following strong first quarter earnings, a new $70B repurchase program (3% of shares outstanding) and the initiation of a cash dividend ($0.20 per share; 0.42% yield). We continue to believe the market underappreciates Google’s exposure to AI with its Gemini model being integrated into search results, YouTube advertising and its cloud offering. We continue to think that the cloud players will be the AI winners in the long-term, with Google being well positioned to take advantage. While the company trades at 24x 2024 earnings, if you remove the money-losing and under-earning businesses, you realize that you are paying below a market multiple for the core Google business. We do not believe there are many other AI winners trading at such an attractive multiple.”
Overall GOOG ranks 4th on our list of the most widely held stocks by hedge funds. While we acknowledge the potential of 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 time frame. 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.
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Disclosure: None. This article is originally published at Insider Monkey.