Top Billionaire Fund Managers Invest Big in Alphabet’s AI Stock: Here’s Why
Leading billionaire fund managers Steven Cohen, Stanley Druckenmiller, and Bill Ackman have recently shown a keen interest in investing in artificial intelligence (AI) stocks. One particular AI stock they all have in common is Alphabet (GOOGL -0.11%) (GOOG -0.11%), the parent company of Google. As the world’s leading internet search engine and the third-largest cloud computing platform, Google has established itself as a powerhouse in the tech industry. Plus, with streaming giant YouTube and autonomous vehicle developer Waymo under its belt, Alphabet is at the forefront of cutting-edge technologies.
These billionaire investors, who have made their fortunes through strategic investments, have recognized the immense potential of AI and are significantly investing in Alphabet’s stock. This insight into their investment choices is particularly valuable for everyday investors, as the fund managers are required to disclose their positions each quarter. With the availability of this information, regular individuals can now follow the lead of these successful investors.
Google’s dominance in the search engine industry cannot be overstated. With a staggering 91% market share in search, Google has access to an unparalleled amount of data. This wealth of data is vital for AI models, making Alphabet a frontrunner in the emerging AI industry. The company’s stock is currently undervalued, presenting a fantastic opportunity for investors to capitalize on Alphabet’s AI potential.
At the beginning of 2023, Microsoft made a significant $10 billion investment in OpenAI, a leading AI start-up known for creating ChatGPT. Microsoft’s integration of ChatGPT into its product portfolio, particularly its Bing search engine, raised concerns that it could become a formidable competitor to Google. However, Alphabet has quietly worked on its AI initiatives for years, and its efforts are evident in the launching of its own ChatGPT competitor called Bard and its advanced model called Gemini.
Gemini surpasses OpenAI’s latest GPT-4 models in various multimodal benchmarks, making it a more powerful AI model. Alphabet is skillfully leveraging its AI models by incorporating them into popular products like Gmail, Docs, Sheets, and Slides. The company also uses AI to deliver direct answers to search queries, significantly improving the user experience. These strategic moves ensure that Alphabet remains at the forefront of the AI revolution.
Alphabet’s official full-year results for 2023 are set to be announced in late January. Expectations are high, with projected revenues of $305 billion and earnings per share of $5.74. This demonstrates steady year-over-year growth of 8% and 25%, respectively. Advertising revenue from Google Search and YouTube rebounded in the most recent quarter, following a period of budget cuts due to inflation and rising interest rates.
Google Cloud is a crucial focus for investors, as AI is expected to permeate various aspects of our lives. The majority of future applications will be developed in the cloud, and major operators like Google Cloud are preparing for this shift by building AI infrastructure. While data-center chips from providers like Nvidia have been instrumental, Google has also been developing its own chips, such as the TPU v5p, designed to accelerate AI model training.
The availability of over 100 third-party large language models (LLMs) through Google Cloud further accelerates the adoption of AI for businesses. Creating an LLM from scratch requires significant time, data, and financial resources. By offering ready-made solutions, Google Cloud enables faster and more efficient integration of AI for enterprises.
Investors are naturally inclined towards good deals, and successful billionaires like Cohen, Druckenmiller, and Ackman possess the expertise to spot them. With Alphabet’s stock trading at a price-to-earnings (P/E) ratio of 24.8, it presents an attractive opportunity. To put this into perspective, the Nasdaq-100 technology index, home to Alphabet’s competitors, trades at a P/E ratio of 30.1. This means that Alphabet’s stock is currently discounted by around 17% compared to its peers.
While catching up to Microsoft’s P/E ratio of 37.6 might be a stretch due to the latter’s larger cloud business, there is room for Alphabet to close the gap. Wall Street’s 2024 estimates predict another record-breaking year for Alphabet in terms of revenue and earnings. This presents a favorable outlook for potential investors looking to seize the opportunity and invest in Alphabet.
In conclusion, top billionaire fund managers are highly optimistic about Alphabet’s AI potential and are backing the company by investing heavily in its stock. With its dominance in search, innovative AI models, and successful monetization strategies, Alphabet is making significant strides in the field of AI. Furthermore, Alphabet’s attractive price-to-earnings ratio and projected exceptional financial performance indicate a potentially lucrative opportunity for investors. As AI continues to reshape industries, Alphabet is positioned to capture substantial growth and deliver value to its shareholders.
