We recently Top 10 AI Stocks Upgraded by Wall Street AnalystsAlphabet Inc Class C (NASDAQ:GOOG) ranks fourth on the list, which is why this stock is worth looking into in more depth.
There's been a lot of noise about AI stock valuations and investors overpaying for big tech stocks that promise productivity gains, real AI products, AGI, and other things that are still far away. But the market doesn't seem to care what AI skeptics and naysayers believe. There's no end in sight to the AI-driven stock rally, and analysts expect more to come. Goldman Sachs' Scott Rabner recently said that a “wall of money” is coming toward the market. Rabner pointed to the massive $7.3 trillion sitting in money market funds and said he thinks the floodgates will open and investors will pour that money into stocks. Rabner's model predicts that billions of dollars ($29 billion to be exact) will flow into the market in the third quarter of 2024.
You don't need a crystal ball to know where billions of dollars are headed. AI is the hot topic everyone is betting on, and everyone is betting on it: pundits, billionaires, asset managers, and long-term value investors. Fundstrat Global Advisors co-founder Tom Lee recently told CNBC that investors have been “hesitant” for most of the year, but should “stick” with “what's working.” According to Lee, the topics that have been doing well lately are AI, weight loss drugs, and related topics.
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In this article, we've highlighted the top AI stocks that Wall Street analysts have recently upgraded or made bullish comments about. For each stock, we've included the number of hedge fund investors. Why are you interested in stocks that hedge funds are flocking to? The reason is simple: our research shows that by mimicking the top stocks of the best hedge funds, you can outperform the market. Our quarterly newsletter strategy selects 14 small and large stocks each quarter, and has returned 275% since May 2014, beating the benchmark by 150 percentage points. (Click here for details).
Alphabet Class C (NASDAQ:GOOG)
Number of hedge fund investors: 165
Alphabet Inc Class C (NASDAQ:GOOG) seems to be fighting a relentless battle in the AI race against competitors that threaten Alphabet Inc Class C (NASDAQ:GOOG)'s core search business. However, many analysts believe Alphabet Inc Class C (NASDAQ:GOOG) has undergone a major transformation and will continue to grow. Big Technology founder Alex Kantrowitz told CNBC last month that Alphabet Inc Class C (NASDAQ:GOOG) is doing “very well” right now thanks to revenue growth, management's tough stance on “problem-makers” within Alphabet Inc Class C (NASDAQ:GOOG), dividends, and share buybacks.
Across all devices, Google market searches increased by 0.5 percentage points month-over-month in May, according to the latest data analyzed by Bank of America, which Bank of America analyst Justin Post said indicates that Alphabet Inc Class C (NASDAQ:GOOG) AI Overviews is “driving query growth and usage.”
Alphabet Inc Class C (NASDAQ:GOOG) bulls believe that Alphabet Inc Class C (NASDAQ:GOOG) is just beginning to launch AI products. Alphabet Inc Class C (NASDAQ:GOOG) is certainly well-positioned to develop an AI ecosystem around its products. For example, demos show that the Gemini app helps with everyday personal tasks such as note-taking, scheduling, and writing. These features can be easily integrated with other Alphabet Inc Class C (NASDAQ:GOOG) apps. Alphabet Inc Class C (NASDAQ:GOOG)'s goal is to encourage users to sign up for its $19.99 “Google One AI Premium” plan. Analysts also believe that Alphabet Inc Class C (NASDAQ:GOOG) is well-positioned to offset headwinds in Google search and market share loss with YouTube. YouTube advertising revenue grew 21% to $8.1 billion in the first quarter. Alphabet Inc. Class C (NASDAQ:GOOG) reported net income of $23.66 billion, up 57%, or $1.89 per share.
Alphabet Inc Class C (NASDAQ:GOOG) bulls believe the market hasn't priced in the growth of Alphabet Inc Class C's (NASDAQ:GOOG) cloud, other businesses, video, and other high-growth initiatives. The stock is trading at 20 times Alphabet's expected EPS of $8.57 for 2025. This multiple makes the stock attractive, as Wall Street expects Alphabet Inc Class C (NASDAQ:GOOG) earnings to grow 13.40% in 2025 and 19% annually over the next five years.
In its April 2024 investor letter, Lakehouse Global Growth Fund said the following about Alphabet Inc. (NASDAQ:GOOG):
“Alphabet Inc.” (NASDAQ:GOOG) reported strong quarterly results that beat analysts' expectations by a wide margin. Revenue grew 15.4% (16.0% excluding the impact of currency) to $80.5 billion, and operating income increased 46.0% to $25.5 billion. Accelerating revenue growth across Search, YouTube Ads, and Google Cloud helped the company achieve its highest operating margin since 2021, signaling meaningful progress on the company's efforts to permanently reinvent its cost structure. On the generative AI front, management highlighted the company's infrastructure advantages, including its fifth-generation TPU (a chip developed by Google specifically for AI training and inference), high-performance data center architecture, and AI models that are 100 times more efficient than 18 months ago. Overall, we believe Alphabet is well-positioned for future AI opportunities and still has significant potential earnings power. Combine that with a relatively undemanding valuation of 21 times forward net earnings and over $100 billion in cash on the balance sheet, and it's easy to see why we remain optimistic about a range of outcomes over the next few years.”
Overall, Alphabet Inc. Class C (NASDAQ:GOOG) 4th Insider Monkey's List 10 AI Stocks That Analysts Are Upgrading. You can visit 10 AI Stocks That Analysts Are Upgrading Let's take a look at other AI stocks analysts are watching. While we acknowledge GOOG's potential, we believe there is a lot of potential for smaller, less visible AI stocks to deliver higher returns in a shorter time frame. If you're looking for an AI stock that has more promise than GOOG and is trading at less than 5x earnings, Cheapest AI Stocks.
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Disclosures: None. This article was originally published on Insider Monkey.
